Wealth in Your Family's Future
to a new study by Merrill Lynch's Private
Banking and Investment Group, family wealth
fails to outlive the generation following
the one that created that wealth in more
than two out of three instances; 90% of
the time, "assets are exhausted before
the end of the third generation."
This report focuses on investors with
more than $5 million, but the principles
apply just as well to those with $500,000
or even $50,000 to invest. If you are
concerned about the financial security
of your children and grandchildren, you
should set a good example and discuss
money matters regularly with your descendants.
One reason that family wealth may not
last very long is simple: people spend
too much. In the Merrill Lynch study,
more than half of the respondents either
expressed confidence that a 6% distribution
rate could sustain an investment portfolio
indefinitely or did not have any idea
of how much could be withdrawn prudently.
To put this in perspective, research indicates
that a sustainable distribution rate might
be as low as 2% of portfolio value a year.
the less you spend the more that can pass
to a surviving spouse and to your descendants.
"Spending moderately wflTsignaTro
your loved ones that this is how one builds
and maintains net worth. In addition,
you can make sure that yout heirs know
that your spending habits are designed
to minimize the chance of depleting the
Indeed, perhaps the most important thing
you can do to preserve wealth in your
family is to regularly talk to your children
about finances. Remember to keep the discussions
age appropriate. With very young children,
you might talk about how money is earned
by working, how some money goes to taxes
to pay for schools and other services,
and how what's left might be either saved
or spent. Avoid getting into too much
detail with youngsters, who probably will
be overwhelmed and, therefore, intimidated
rather than educated.
your children are ready for college, you
can have practical conversations aboutTheir
choice of study and eventual career path.
A student who knows a substantial inheritance
lies in the future, or who can play a
possible role in a thriving family business,
might be inclined to consider a course
of study that relates to a personal passion;
another student, one who understands that
his or her lifestyle will depend on his
or her earnings, could go in another direction.
conversations might take place when children
are about to become parents or are shopping
for a home. The more they know about your
finances, and about their own prospects
for an inheritance, the greater the likelihood
they'll make informed decisions.
the flip side, holding these ongoing conversations
with your children can educate you, too.
You might discover a need for gifts or
loans that you hadn't known about. Conversely,
you might realize that your children are
uninterested in financial matters and
may make poor decisions if they inherit
money outright. If so, you may have the
opportunity to build safeguards into your
estate plan, such as giving or leaving
money to a trust for a child's benefit.
Of course, some parents will not want
to reveal all the details of their financial
affairs to their children. In truth, that's
not really necessary. You might give your
children an overview, with enough information
to impart what you are willing and able
to provide during your life and a general
idea of what they might inherit someday.
In addition, you can tell your children
where to find key documents and also provide
contact information for your professional
you bring your advisors into the inheritance
conversation, keep in mind that some studies
show that both parents and children may
be more comfortable discussing their circumstances
with a financial professional (CPA, attorney,
financial planner) than with each other.
If that's the case in your situation,
you might ask a professional with whom
you work to suggest and even host a meeting
of the generations. Our office would be
pleased to help you get the conversation
Source: August 2014 AICPA Client Bulletin