You’ve worked hard to build your wealth. Now, it’s time to decide how it will affect the next generation. As your children become adults, you have some big decisions to make about how that wealth gets passed on to them, and how they handle it.
Some parents find it difficult to share information about family wealth with their adult children, or even avoid it altogether. Others get their children involved early on, even including them in the family business while they are still minors.
The reasons for such a large gap in how parents share financial information with their adult children are many. Different parents have different goals. Some parents feel more comfortable talking to their kids about family money than others. Perhaps the most prominent reason is simply how the parents were taught about wealth from their parents. These lessons, whether taught explicitly or implicitly, shaped their attitudes and behavior towards money, which inevitably get passed down to their children.
At the end of the day, you might not feel like your kids are ready to learn about and handle the family wealth.
What should you do, then? How do you plan for the future and decide what will be done with your wealth?
Let’s look at some practical steps you can take to ensure your adult children are ready to steward the money you’ve worked so hard to earn.
Clarify your Family Wealth Goals
Start with your family values and mission. What’s important to you and your family regarding wealth? Do you want your children directly involved with family money or not? Let’s look at each scenario.
Involving the kids in family wealth
Perhaps you want to:
- Have your children eventually take over the family business.
- Get them involved in making decisions about family money.
- Prepare them to take over the family wealth should something happen to the head of the family.
If you want your children directly involved with your family wealth, then some planning and preparation will be required, especially if it involves taking over the family business someday. We’ll cover that in a moment.
Not involving the kids in family wealth
If you do not want them directly involved, then you may simply want to:
- Have financially independent adult children who can support themselves and make sound financial decisions.
- Help your children develop their life and goals so that wealth would only enhance them and not fully support them.
- Prevent your children from creating unsustainable habits brought on by poor wealth management.
If this is the route you want to take, then your children do not need any direct involvement in the family wealth. Instead, they need to focus on creating and exhibiting their own financial independence.
Prepare Your Children to Handle Family Wealth
Preparing your children to manage the family wealth is not always an easy task for parents. Many parents are hesitant to share financial details with their children, whether they are adults or not. However, you have to start somewhere.
You need to take your children from having no knowledge of family finances to being knowledgeable and prepared to be involved or even fully responsible for family finances, or at least being more financially responsible. This is going to require some planning and preparation as well as patience on your part. While you may not want to share the intimate details of your balance sheet and copies of trust documents with your children, you do need to take steps to make sure they are prepared for the responsibilities of their future inheritances. Simply, they need to be “ready.” And, getting to this point does not happen overnight.
How to know when your adult kids are “ready”
How do you determine when your adult children are ready to engage in family wealth? Well, there are some important milestones you may want your children to complete first. For example, you may want them to:
- Finish their own education.
- Maintain a steady job or show advancement in their career.
- Show their own financial independence (buy their own car, buy their own house, etc.).
- Have a family of their own.
Basically, your adult children need to display responsibility in their lives and make good decisions, independent of family wealth. These qualities will be necessary, especially when handling family wealth means taking over the family business, if there is one.
Begin The Process
Once goals are established, determine what qualities and skills adult children should possess to meet those goals. Then you must nurture and encourage those qualities and skills. The most important thing you will learn during this process is your children’s interest in managing the family wealth.
Begin by sharing more details with them, including challenges, decisions, and your own thought process in solving problems. This process can be repeated regularly, which will create more dialogue with your children, inform them of family affairs, improve communication, and ultimately allow you to determine their interest level. You don’t want to force such a big responsibility onto your children if they show little interest in handling it. For some, if not a complete takeover is the goal or desire, you’ll know to stop here at this stage because you’ll have clarity through improved communication.
The Family Business Example
If the goal is for your children to eventually take over the family business, you’ll need to cover a lot of ground to get them ready. Before you begin, ask yourself:
- Do your children know anything about the business?
- Do they have any desire to run the business?
To assess this, start by introducing your children to basic information about the business. Start small if they know nothing at all about it. Go over the history of the business, why it was started, and why it is important to the family.
As you get into more detail, share important structural aspects of the business, especially important personnel, their roles, and their history with the business.
Remember the challenges you experienced when you were growing and managing the business. Express those clearly and set your children up to succeed into the future.
A Professional Approach to Managing Family Wealth
Preparing your children to manage the family wealth is a challenge. We help families make the transition easier with our wealth management services. If you want to continue growing your wealth and set your children up to manage it well, talk with a financial advisor today.