Financial Planning: How to Build Generational Wealth That Lasts

Nothing is easy when it comes to building significant net worth from the ground up; it can take decades of hard work, sacrifice, and discipline. But there may be one thing that can seem harder: ensuring your family holds on to that wealth after you’re gone to create generational wealth.

Research does not paint an optimistic picture. A 20-year study by The Williams Group found that most family fortunes don’t last. The data revealed only about one-third of families succeeded in retaining wealth into the next generation. Of course, that leaves two-thirds regrettably eroding that family fortune rather quickly.

If your goal is to keep the legacy you’ve built in the family to help positively impact future generations through generational wealth, you need to set up a strategic plan and proactively avoid the pitfalls that commonly cause this rapid loss.

Below are some recommendations to help protect the wealth you have worked so hard to build, so it continues to benefit your family for many years.

Open the lines of communication

An excellent place to start is thinking about your communication about the wealth you’ve accumulated and how your family tends to approach conversations about income and assets. In many families, it can be a bit taboo to talk about accumulated wealth. That silence can unwittingly promote a lack of awareness or understanding about your approach to managing assets. Even worse, not addressing your accumulated wealth won’t help your loved ones develop the necessary skills to keep that wealth intact down the line.

If this situation sounds familiar, you’re not alone. Research suggests that many parents are aware of the need to openly discuss their wealth, but few actually follow through. According to a North Carolina State University study, parents discussed general concepts like saving and spending but kept quiet about the specifics of how they are managing and protecting their own funds. Those specifics included the status of family finances, income, investments, and debt. It also included crucial information such as the trustees of the funds, how taxes might affect them, and the parameters around them. Not addressing these topics leaves a knowledge gap that causes family members to draw their own conclusions, which may be highly inaccurate.

While it may feel awkward, it is wise to start these discussions as soon as possible to help solidify generational wealth. This way, your family’s money situation is understood and well-managed. Most important, as children or other close family members age, they can develop an understanding of what it takes to build, protect, and maintain wealth.

Here are a few tips to get started:

• Create a plan to have a conversation about financial assets at regular intervals (annually or more often as needed), so family members are informed and aware. Use these opportunities to explain family finances and bring the next generation into the decision-making process early.
• Include discussions about the realities of wealth; address both the opportunities and the responsibilities that come with a significant inheritance.
• Introduce your professional advisor team (wealth advisor, CPA, and lawyer) into family conversations to help develop the habit of making well-advised decisions from trusted sources.

Of course, it can be challenging to discuss many of these topics with your close family members, especially if you’ve put it off. Still, it is critical for the preservation of the family’s assets in the future.

This is where the right financial advisory team can help. Professionals with deep experience, who focus first on listening to you and understanding your goals, can help navigate these conversations. In the process, the conversations might become more comfortable.

Create a meaningful plan and vision

Along with opening up the lines of communication, it’s also best to begin communicating your vision and values about money.

Consider creating a family mission statement. Ideally, propose your own vision but engage the family in developing it further. This can help you start integrating family members into the process of philanthropy and service early on. By letting heirs participate, they can become engaged in the process.

Then, look for additional opportunities to teach about stewardship and using family resources to make a difference, whether in your community, for educational or other future opportunities, and to protect your legacy to create generational wealth.

Once you’ve finalized a plan and vision, don’t just let it sit on the shelf. Integrate that family mission statement in other ways. Some families may choose to periodically meet about their progress to ensure that family members stay engaged in their efforts to fulfill the mission.

Prioritize comprehensive financial planning

More planning, not less, is also an inherent part of making sure your wealth lasts. Here are the areas you’ll want to be sure to cover:

• Comprehensive financial planning is necessary to help appropriately manage risk.
• Regular tax planning can help minimize taxes now and later, which is a critical part of wealth preservation.
• Estate planning can provide you more control later by putting structures in place now.

Just as important, make sure whoever is helping you plan is qualified to give you the best advice possible for you. We believe you should consider looking for the CERTIFIED FINANCIAL PLANNER™ mark to ensure you’re working with a professional with the expertise and experience to help you pursue your goals. A financial planner that listens to your goals and can develop a customized plan just for you can be the “quarterback” to help you manage all aspects of your assets and investments, which can also help potentially lead to generational wealth.

Don’t forget about asset protection

Of course, all the open communication and financial planning in the world won’t replace the need for defensive strategies. You’ve got to be proactive in protecting what you’ve built. In light of that, part of your wealth preservation strategy should include asset protection.

Unfortunately, as your wealth grows, so do the threats that might keep your legacy from growing. Poor management by advisors or family members, future divorces, and lack of security can all pose a threat to the sustainability of your assets.

That’s why it is critical to take time to deploy asset protection strategies to help protect against common threats:

• Your estate plan might benefit from setting up a trust to help shield assets from future creditors and to control use by your heirs
• Prenuptial agreements can help ensure that family wealth stays with your family in the case of future divorces
• A periodic insurance review by an independent financial advisor can help you identify and correct any areas where you may have exposure (the independence here is key as they are not tied to recommending any specific products that may or may not be in your best interest)

Secure financial education for the next generation

Along with these other elements, financial knowledge is vital so the next generation understands the importance of making careful financial decisions.

You may need to be creative as you develop a strategy to ensure all family members fully understand financial matters. For example, in a trust, you could tie such financial education into conditions for receiving the inheritance. You can ask your financial advisor if they can provide options as well.

Whether formal or informal, your educational efforts should also address privacy issues. In a world where cyber-attacks are increasingly common, it can help to give specific, concrete examples to family members who may not be well-versed on how to respond to questions about the family’s wealth and the safest forms of communication.

Also, heirs should be trained to help identify people who may try to get close to them as a way to access the family’s wealth. Yes, these are awkward topics, but important to protect that wealth through generations.

Get a professional support team in place to help guide you toward generational wealth

We believe the right financial advisory team can help make this entire effort more manageable and effective. First, they can help you handle all these tasks using best practices, which is particularly useful as the more wealth you’ve accumulated, the more complex it is to manage. Then, they can act as critical guardrails for your family both for you and as wealth transfers to the next generation.

But bad advice can be as harmful as other mistakes, so be sure to choose your professionals carefully:

• Consider using a firm that is a Registered Investment Advisor and acts in a fiduciary capacity at all times.
• Look for fee-only firms to avoid the conflicts of interest that come with product sales.
• You’ll probably want a team that you won’t outgrow, so look for a firm that includes multiple disciplines, including financial advisors, planners, tax, and estate planning specialists.
• Look for those who have earned industry credentials, including CERTIFIED FINANCIAL PLANNER™ professionals, CPAs, and Chartered Financial Analysts®.

Once you have your team in place, consider connecting those advisors with your heirs, there is a comfort level in working closely with the team. Families should understand the role these advisors play in helping to protect and safeguard wealth.

Bottom Line

Unfortunately, statistics show the odds are stacked against families who want to retain wealth for the long run. However, we believe these six steps can help put the knowledge and systems in place to potentially prevent that from happening and retain generational wealth.

Savant Wealth Management (“Savant”) is an SEC registered investment adviser headquartered in Rockford, Illinois. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments and/or investment strategies recommended and/or undertaken by Savant, or any non-investment related services, will be profitable, equal any historical performance levels, be suitable for your portfolio or individual situation, or prove successful. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.savantwealth.com. The scope of the services to be provided depends upon the needs of the client and the terms of the engagement.