Monday, June 24, 2013
According to a Chinese proverb, “Wealth never survives three generations.” Because of this three-generation rule, nine out of ten family fortunes will be gone by the time baby boomers receive their inheritance. This trend is preventable, but it involves having honest conversations with the beneficiaries and a willingness to give them some money now to avoid having it all lost later.
The second and third generation often doesn’t experience the work and sacrifice it takes to earn the family fortune. Before a generation inherits a fortune, “wealth builders” should instill financial responsibility at an early age by giving their beneficiaries a substantial sum of money. For those that blow through the money, a restricted-access trust may be in their future.
If a family business is involved, wealth builders should also be willing to relinquish some control to beneficiaries so they will be more prepared when it’s time to take over. And because the first $5 million of inheritance from each parent is exempt, parents should consider giving children money before they die to avoid the estate tax.
See John Hartog, Jim Kohles & Haitham “Hutch” Ashoo, Will Your Beneficiaries Beat the Odds?, Idaho Senior Independent, June 20, 2013.