Many families struggle with inter-generational miscommunication about family wealth leading to hard feelings and loss of trust. Our Donor Advised Fund owners can bring their children into their funds as philanthropic advisers. This can help avoid many of the pitfalls associated with inheritance by opening the lines of communication as mentioned in this article from Wealthmanagement.com as paraphrased below.
In the United States alone, it’s estimated that more than $40 trillion will transfer from baby boomers to the rising generations. In addition, the ownership of thousands of family businesses will transfer to younger family members.
Most families aspire to preserve wealth, values and legacy over the generations. Research demonstrates that a number of factors influence a family’s ability to reach that goal.
Almost always near the top of the list is a family’s shared commitment to community, service and philanthropy.
The authors of a major study focused on 2,500 affluent families discovered that, over 20 years, 70 percent of those families lost control of their assets (and family harmony) in the first, second or third generations following wealth transfer. Sixty percent of the time, those failures were due to a lack of trust and poor communication.
“Where heirs were encouraged and intelligently guided to participate in family philanthropy,” said the authors, “it had a profound impact in three major areas of their development and preparation for later life. The three major areas were values, mission and accountability.”
Dennis Jaffe, a professor of organizational systems and psychology at Saybrook University and a family business consultant, one of the authors of a related study, observed in a later paper, that:
- Jaffe said the loss of assets arises from the behavior of the older generations’ lack of engagement with the next generation, not necessarily from the motivation of the next generation.
- Often the next generation perceives that it is hard to contribute since they cannot use traditional methods.
- Parents should find ways to invite their children to become meaningful partners as they transition from controlling owners to mentors.
- Parents should listen to their children who may have different approaches to maintaining family wealth.
Philanthropy is an effective way to engage all family members in a conversation where they can share, teach, learn, value, change and consistently grow family wealth and giving.
Contact us if you’d like to set up a donor advised fund and open the lines of financial communication in your family.