Are You Successfully Preparing Your Heirs for Wealth?

Professional Advisor Insights

This article is part of the Professional Advisor Insights series.


Preparing your heirs for wealth is usually overlooked in traditional wealth transition planning. Yet it is an essential component of a successful transition of wealth between generations.

Did you know that 70% of transfers from one generation to the next are doomed to fail?

This is true worldwide, across countries with radically different economies, political structures, and tax structures. This phenomenon has generated some universal sayings, such as “clogs to clogs in three generations” (UK), “rice bowl to rice bowl in three generations” (Asia), “shirtsleeves to shirtsleeves in three generations” (US), and “wealth never survives three generations” (China).

Roy Williams, President of The Williams Group in San Clemente, California has spent over 20 years studying why such a high failure rate exists.

His research indicates that the cause does not stem from external factors, such as taxes, governance, legal issues, etc. Instead:

  • 60% of all failures result from a breakdown in communication and trust within the family unit
  • 25% result from heirs who are inadequately prepared for financial responsibility
  • 10% are attributed to a lack of common purpose or family mission
  • 5% are attributed to other factors

Unfortunately, most wealth transition plans only focus on preparing assets and completely ignore the heirs. This is true in estate planning, asset protection, tax planning, investment management and philanthropic giving.

Most wealth transition plans only focus on preparing assets and completely ignore the heirs.

So if most planning is destined to fail, what can you do differently? How can you beat the odds?

You must prepare your heirs for wealth and the key is communication. Talking with your children helps develop a healthy attitude towards money and responsibility.

Yet families avoid the topic of wealth for a variety of reasons. Many feel that money is a private matter and simply not open to discussion. Others fear that a discussion may rob their children of motivation and/or initiative, put too much emphasis on materialism, or put undue pressure on their children to “fill big shoes.” And some believe it will create a sense of entitlement.

Whatever the reason, the topic is avoided.

I encourage my clients to begin a dialog immediately. Preparing your heirs for wealth is a long-term process, which should begin with an early establishment of family values. Educate your heirs about your values and what you would like them to accomplish with their inheritance. Make sure they know what your expectations are and make sure they are realistic.

We use a wonderful tool, a “Letter of Intent,” to begin the dialog process.

An effective Letter of Intent is personal and directly addresses your heirs. It explains the history and source(s) of your wealth, your values regarding money, your definition of happiness and/or personal success, your hopes and desires for the future, and your responsibility to yourself, your family and your community.

Click here for a sample format of a Letter of Intent so that you can accomplish a successful wealth transition to your heirs.


About R. J. Kelly

R. J. KellyR. J. Kelly, ChFC®, CLU®, IAR, RICP®, MSFS, is the Founder and Chief Visionary Officer of Wealth Legacy Group®, Inc. (www.wealthlegacygroup.com), and co-host of the radio program, The Wealth Building Hour on www.WSRadio.com. WLG, Inc. is recognized as one of the nation’s premier organizations for assisting clients in successfully navigating significant business, life, and legacy issues while creating long-standing and mutually profitable relationships. WLG, Inc. provides a unique and multi-disciplinary planning experience to exceptional business owners, professionals, executives and their families using a comprehensive team approach. R. J. can be reached at (800) 975-5355 or rj@wealthlegacygroup.com.

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