The Failures of Transferring Wealth

If you believe that everything has been done to preserve your estate as it passes to your heirs, you may want to think again. Almost 70% of family wealth transference and business succession plans fail, according to studies cited by Victor Preisser and Roy Williams in their book “Preparing Heirs: Five Steps to Successful Transition of Family Wealth and Values.”

Despite considerable time and money often expended on quality financial and legal advice, less than a third of wealthy families are able to keep control as their assets pass to the next generation.

History’s largest intergenerational wealth transfer is about to occur, which makes the concern particularly poignant. Experts project that $25 trillion is expected to pass from elder parents to baby boomers over the next 20 years, $7.2 trillion of which will go directly to boomers, according to Dr. Ken Dychtwald, author of “The Allianz American Legacies Stud.”

Failure can take a number of forms. There is the obvious: estate erosion attributable to inadequate tax planning, liquidity issues that may force below market “fire sale” of otherwise wanted assets, and lack of specificity that may lead to conflicts between heirs. Beyond that is the probability that “the heirs will involuntarily lose control of the inheritance left them… not from outside sources, but rather in the values and practices of the heirs themselves,” Williams and Preisser wrote in their book.

Key among these are the values and skills the next generation are given to wisely oversee their inherited wealth. Thus the term “values transference” is coined. A common deficiency in unsuccessful transfers is a clearly developed plan or family mission statement, and the presence of open communication.

The fact is, poor interfamily communication is cited as a key ingredient. A 2005 study by Dr. Dychtwald, of Age Wave, found that less than one third of boomers and their parents have had a thorough discussion on all aspects of legacy planning. Factors for this were not surprising, but noteworthy. Personal discomfort with topics of inheritance and death are the biggest barriers to discussion. But it was unexpected that 34% of the boomers studied were more uncomfortable discussing their parents’ situation than the parents themselves (22%). Further, 25% of the boomers hesitated because they thought such conversations would be upsetting to their parents, whereas 36% of the parents thought it would upset their boomer children. Both groups about equally (22% boomers, 20% parents) thought the talk would cause conflict within the family. The bottom line may be that each generation may be misreading the other.

The solution may lie in the ability to develop a framework for open discussion. It starts by expanding the concept beyond inheritance. Whereas inheritance refers to the physical assets and possessions that we pass, legacy includes the intangibles. Thus the “six pillars of legacy” include not only the (1) Financial assets and/or real estate and (2) Personal possessions of emotional value, but also (3) Value and life wisdom-lessons; (3) Ethics, morality, faith and religion; (4) Customs and traditions; (5) Memories and stories; and (6) Instructions and wishes to be fulfilled.