Key Takeaways
- It is never too early to talk to your children about financial matters and the value of generational wealth.
- Your financial legacy is more than money. It bestows your values, stories, and responsibilities.
- Ensuring that your finances and estate are in order through careful and thorough estate planning is one of the most valuable gifts you can give your children.
While generational wealth is a daunting topic to discuss, understanding it is critical to the wellbeing of your children and posterity. Embarking on the conversation will lay the foundation for a lasting and impactful legacy. It is not merely a discussion about accumulating wealth; rather, it is focused on the prosperity of future generations. You might be asking, how do I initiate this vital conversation without making it feel like an overly formal conference? In this article, we will share tips for going through this process with pragmatism and warmth.
How to Approach the Conversation
Your approach to the conversation should encompass more than your family net worth. Instead, view the dialogue through the lens of your family values and financial ideology. Frugality, budgets, saving, generosity, use of debt, and entrepreneurialism are all examples of money values to discuss and model to your children.
A common misconception about generational wealth is that these discussions are only for the ultra-high net worth. However, anyone with assets, such as a home or savings, should consider how they want those assets to benefit future generations. At Alpine Private Wealth, we believe it is about prudent stewardship, not just wealth. A legacy of even $100,000 is worthy of a conversation.
Explaining Generational Wealth
Your children may not be familiar with the concept of generational wealth. Put simply, generational wealth refers to assets or financial capital passed down from one generation to the next. This includes savings, real estate, stocks, family businesses, and other items of economic value that contribute to long-term financial security and opportunity. It also incorporates the resources, knowledge, and opportunities passed down through generations.
How to Prepare
Before you talk to your children, think through your plans for them in the context of the formal transfer of your wealth. Below are estate planning questions you should consider asking:
- How do I distribute my estate, wealth, and business if I do not think my children can manage it themselves?
- Who should be responsible for the business? Will it be someone in the family? Will I bring in professional management? Or will I sell it?
- Do I need a trustee and if so, what kind of trustee: professional, corporate, personal?
- Equal is not always fair. How do I decide who gets what in my family and successive generations? How do I appropriately communicate my wishes?
- If something happens to me, who should take care of my child(ren), and how do I allocate money to raise them?
It may help to bring in a third-party to walk through the answers to these questions or even be present when you talk with your children.
What to Discuss When Talking to Your Children About the Future
Conversations about wealth and future planning should begin early, and each situation requires an assessment of what is the most appropriate age to initiate the discussion. You can begin by sharing that one day you will not be here, what you intend to entrust to them, and how you plan to pass it on. You can ask them to start thinking about what they will want to do with the inheritance they will receive. This conversation can increase in complexity as your children age.
No matter the age, it is never too late to create a culture of transparency and preparedness, making the discussion a natural part of family dialogue. The key is to introduce the concept so that it resonates with your children’s age and maturity level.
Introducing Philanthropy
Teaching your children the value of giving by approaching it with a narrative that is relevant to their world is most effective. When they are still young, explain to them how a park, landmark, theater, or national seashore came to be through the kindness and generosity of others. As soon as they are old enough, involve them in philanthropic endeavors along with decisions on which charities to support financially. This not only helps them understand the power of wealth to make a positive impact but also instills a sense of responsibility and gratitude.
The Future of Your Business
Discuss the future of any family business, including potential leadership or the sale of the business. Frame the conversation around choices and possibilities—who might want to take over the business one day or how a sale could impact the family’s financial future. Emphasize the value of the business not just in financial terms, but as a legacy and a reflection of family values. This conversation should also cover practical aspects such as operational details and can become more in-depth as your children age, especially if they become involved in the business.
Create A Legacy Letter
If these types of conversations are difficult for you—or even if they are not—consider creating a video or written legacy letter for your children and other family members to review after you are gone. Use this video or letter to share your thoughts, wishes, and the story of your business, wealth, or both. Not only will this help convey the feelings and emotions behind certain decisions, but it will also communicate your living legacy.
A Critical Conversation Starter: Estate Planning
Getting your finances and estate in order is one of the best things you can do for your children in terms of passing on generational wealth. It takes time, money, and effort, and it is not something you “set and forget.” The good news is that Alpine can partner with you and help lead the process to develop an organized estate plan. You will have a full picture of where your wealth stands and how it should be structured to benefit future generations. For example, Alpine will provide comprehensive planning tools to help organize and prepare pertinent documentation for your children and spouse. We can also lead you through the much more complex process of establishing your estate plan in conjunction with your selected estate planning attorney. All of this will greatly facilitate productive discussions of the wealth you will pass on to your children and other heirs.
We look forward to sharing more about how our oversight of the estate planning process can prepare you for planning conversations with your children. Feel free to contact us with any questions or to learn how to get started on your estate planning journey.