When a person has built up a lot of wealth, one of their hopes may be that this wealth will remain in their family for a long time after their death. However, there are many challenges that can arise when it comes to actually keeping wealth in the family.
This can be seen in some estimates that have been made regarding wealthy families. According to these estimates, by the second generation, around 70 percent of such families have lost their wealth. By the third generation, this percentage rises to 90 percent.
Many things could cause family wealth to erode after the lead generation passes on, including:
- Estate taxes: Estates above a certain value could trigger an estate tax. This can result in a good chunk of family wealth being redirected to the government after a person passes away.
- Legal battles within the family over inheritances: Such battles cannot only put a great strain on the relationships within a family, they can also burn through a lot of resources.
- Mismanagement by heirs: Sometimes, due to things such as poor decision-making or lack of financial know-how, heirs end up depleting a great deal of an inheritance.
While there are many challenges that can come over preserving wealth over the generations, individuals of the lead generation of a wealthy family are not powerless to try to overcome these challenges.
One thing that could help with such preservation is having good and honest communications with the younger generations of the family about family wealth, money management and plans for future inheritances. This could help with preventing family inheritance battles or inheritance squandering.
Estate planning can also be helpful on this front. Estate taxes, concerns over possible family battles over inheritances and concerns over heirs’ ability to handle an inheritance are all things that estate planning can be used to addressed. Skilled attorneys can give individuals guidance on how they can use their estate plan to preserve family wealth.
Source: Money, “70% of Rich Families Lose Their Wealth by the Second Generation,” Chris Taylor, June 17, 2015