The following is a summary of our recent interview with Amy Castoro at The Williams Group, which can be accessed on our site here or on iTunes here.
Many individuals who have accumulated wealth over their lifetime want to help their children thrive and grow. But, when it comes to transferring wealth along to future generations, money often tears families apart.
Studies show that as many as 70% of families fail to succeed with wealth transfer, said Amy Castoro, author of Bridging Generations: Transitioning Family Wealth and Values for a Sustainable Legacy, and she offers five essential steps to mitigate this problem.
Many people think of wealth as financial security or assets, but that's now what Castoro believes we should focus on.
"That's really the central point of our work with families," she said. "There's a focus imbalance, where most people will pay attention to wealth as being the asset. ... In our world, the wealth is really the family values, the family network and the family themselves."
The reality is, without a strong, unified family, she noted, the wealth can't really continue to benefit the family in a significant way.
As many as 70 percent of families are unprepared to transfer wealth successfully, Castoro notes in her book, and much of this difficulty comes from an inability to communicate.
"Families just don't learn how to talk about money," she said. "It's a taboo topic, and has been culturally across the globe for a very long time."
It's important to learn how to have these conversations, Castoro explained, to dispel concerns about greediness, family values, and fears of how wealth transfers will affect family dynamics.
The worst thing is to not have the conversation at all. To prevent this, Castoro focuses on teaching families how to have this conversation for the sake of the good of the family.
For first-generation wealth creators, the burden often falls on them as to how their wealth is going to impact their family. Often, however, when the time comes, they find they can't control how a wealth transfer is going to play out.
"We wanted to raise their awareness on how important it is to have the voices of the generation that's going to continue the wealth be included not only in how they design their estate plans, but knowing what's going to be expected of them, and how they can contribute to the wealth so that it continues across generations," Castoro said.
Those with tenured wealth - "old money," so to speak - and financial advisors also play an important role, but just as important is the role of heirs in the entire process.
Three core drivers that help a family be successful are: trust and communication skills; heir-readiness and the heir's relationship to the wealth; and articulating values and mission behind the family wealth, Castoro noted.
"They all want the same thing," Castoro noted. "They all want family unity at the end of the day. They all want to have honest communication across generations."
To that end, family meetings help establish how the younger generation can develop conversation skills necessary to the functioning of the family. Openness and honesty are vital to dispel concerns about how money will be used, and what everyone's responsibilities are in the process.
"There isn't a client that comes to us and doesn't say, 'I'm here because I'm concerned about this wealth tearing the family apart,'" Castoro said. "Every single one of them have that concern. And yet, when they started building the wealth, it was because they wanted to give their kids a better life."
It's vital that everybody is included in the planning process. Castoro likened it to a game of football, where mom and dad are executors of the estate. Their front line is made up of their financial advisors, tax preparers, and accountants.
"Often, when the time comes for the ball - or, in this case, the estate plan - to be passed to the heirs, and the heirs haven't seen the playbook, they have no idea what they need to do to make sure this wealth is protected," Castoro said.
Because of this, there are five steps every family needs to consider to successfully execute a winning strategy, Castoro stated.
"These five steps, we think, are the whole ball of wax," she said.
The wealth creator has to take the initiative and not leave the impact of wealth to chance. This means preparing for the transfer and opening the conversation.Secure the plan by articulating family values. There must be enough trust for family members to articulate what they really care about. Otherwise, people may be uncomfortable or unsure of their role in the process.The family needs to have a well-articulated action plan. What behaviors are going to allow this plan to be realized? It's necessary to operationalize this process, so everyone is clear on their responsibilities and opportunities.Define the roles and aspirations of everyone in the family. The next generation might decide they want to leave a family business to start another venture, for example. The family must decide how this affects wealth transfers, and what each member can expect.The last step is to prepare the heirs, explain the plan, and make sure they know their role and that they're onboard with it.To contact The Williams Group or request more information about their services, visit www.thewilliamsgroup.org. To purchase Amy's book on Amazon, click here.