In a study of wealthy families, it was reported that some 70 percent of wealthy families lose their wealth by the second generation; by the third generation, 90 percent.
We have all heard cases of “trust-fund babies” squandering away their inheritance, and while there is absolutely nothing wrong with being a trust fund baby, how can you prevent this from happening to your family? What steps can you put in place now?
Below are three ways to reduce the chances of your beneficiaries squandering the wealth that you are working so hard to build for your family legacy.
1. Teach them how to manage money EARLY.
Teach them important financial principles such as how to manage money, how to minimize and avoid high interest debt (especially consumer debt), how to save, build their credit, and most importantly how to invest.
2. Talk to your older kids and teens about what happens when you pass.
Yes, we know that it may sound morbid, but the reality is that everyone will experience death at some point in life. So, you want your children to be prepared. If you have teenagers, talk to them now about what they can expect.
3. Establish a trust and create a family estate plan.
You can create and use certain types of trusts that can set parameters around how your children can access the assets that you leave them and when. On the other hand, you can also choose to withhold payments until beneficiaries meet certain milestones such as completing college, or until you feel they are at the age where they can be responsible with large sums of money. Seek out a professional estate planning lawyer who can help you draft and create a family trust.
Make sure that you are not only taking steps towards wealth creation but also wealth preservation. This means not only teaching your children financial literacy but also by establishing an estate plan, including a will, living will and family trust to protect your assets.