How to help your UHNW families transfer their wealth

Encourage them to share their wealth story and values, plus build communication and trust

How to help your UHNW families transfer their wealth

Advisors should guide their ultra-high net worth families who want to pass their wealth to the next generation to start grooming that path well before they do the transfer, according to one financial planner.

“You should help them normalize it for their families because every family has a different comfort in terms of its fear of conflict or loss of control or even concern about its privacy not being there any longer, which are common reasons why families often avoid these conversations. They should turn it around and start having these conversations,” Shelley L. Forsythe, director of the BMO Family Office’s Family Enterprise Planning, told Wealth Professional.

“It doesn’t mean you have to immediately start by talking about numbers. It’s all about starting with easier topics. Sometimes it’s getting the founders – or matriarch and patriarch – to talk about their relationship with wealth to help them think about what kind of lessons learned they have and what mistakes they may have made, and get them to start talking about what they hope this legacy could look like. Having that intentional conversation really sets the stage for where they can go next.”

Forsythe said this kind of conversation, and approach, is also helpful when the money has already passed through a couple of generations and is destined for another. It helps the family capture the stories behind the wealth and how it was created, its meaning for the family, and its hope for its legacy moving forward.

“Usually, the values come through in that storytelling, and it’s those core values that are really helpful to ensure that everyone is on the same page,” she said. “Values are taught. They’re not caught, and that’s why the storytelling is such an important piece.”

Forsythe said it’s ideal to begin sharing the family’s story around wealth when the children are younger, so they grow up understanding the values, purpose, and intention of that wealth. But, it’s important to start it at any time before the transfer, if that hasn’t already been done.

“There’s no one size fits all because families are really like snowflakes. Each of them is unique,” she said. But, she encouraged advisors to universally recommend that the family start having conversations about their wealth and what it means, and some of the stories behind that.

It’s also important to help those who are inheriting the wealth develop some financial literacy.

“If the parents don’t have that expertise, they can certainly draw on their advisory team members, whether it’s an investment advisor or banker, to start that financial literacy and financial planning process.”

She said that includes ensuring the next generation understands any existing legal documents or structures, the structures’ objectives, and how those impact the next generation. They should also look at the family’s philanthropy or charitable giving.

“When you look at the reason for wealth transition failures, the number one reason is lack of communication and trust building. That’s about 60%. But, the next closest is lack of preparation and education for required roles and accountability, and that’s 25%, but they’re really linked,” she said.  “So, it’s really making sure that they’re opening the lines of communication, but the actual methodology and frameworks are being put in place in terms of preparation and education.”

Forsythe noted that’s important from both a quantitative or IQ (wealth planning, tax investments, estate planning) and qualitative or EQ (family communication) perspective. It also helps the next generation make decisions about the legacy assets – whether they’re inheriting it, so will be making all the decisions about it, or have a formal structure, like a trust, so they’ll be stewarding it to continue to pass it on to future generations.  

Either way, the family’s advisors may have to work with it to ensure that the offspring who will be inheriting the money can work together to maintain an ongoing dialogue to manage the investments, make decisions together, and, if necessary, chair annual general meetings.

“Ultimately, it’s making sure that there is a learning process so that everyone is clear that there’s transparency, individual and also family goal setting in terms of what everyone wants to see in the future, and an understanding of what the roles are,” she said.

The advisors may also have to encourage the family to deal with such issues as addiction or a “proverbial black sheep” since, she said, “it’ll keep bubbling up to the surface in a different way.”

Forsythe encouraged advisors to help the family bring in other advisors and resources to help facilitate all this because the more that’s done upfront, the more successful the transition will be.