5 Steps To Avoid The Three-Generation Curse In Wealth Management
Posted on: 27 January 2023
Can your hard-earned wealth or successful business avoid the three-generation curse? The three-generation curse refers to the oft-cited statistic that family money or businesses often do not survive past the third generation. There are many reasons, but the mixture of family dynamics and financial activities is the biggest culprit. How can you avoid losing your wealth to the three-generation curse? Here are a few steps to take now.
1. Develop a Management Plan. Wealth management plans are advanced financial planning for those who have a lot to manage. They are designed to look at your entire holistic situation, including both financial and nonfinancial challenges, to develop a forward-thinking plan. Building up cash or a business with no future planning is a good way to lose it.
2. Incorporate Outsiders. Family businesses and foundations who rely solely on family members have a hard time adjusting to change. While you and your adult children may get along and have similar goals, their children and grandchildren will become less cohesive as the family changes. The best way for many families to overcome disharmony is to include outside professionals from the early stages.
3. Prepare for Succession. Succession planning is key to making a good transition from your control to the next generation (and from theirs to the next). Succession planning in a family business means determining who wants to operate the business, whether it should be sold, and how to divide decision-making. With wealth management, this usually means deciding how much to leave to others, what charitable legacy you want, and how to use legal tools like trusts.
4. Keep It Business-Like. Family enterprises are usually operated in either a family-first manner or a business-first manner. Family-first enterprises tend to work well in the beginning but deteriorate over future generations. Developing a business-like approach to decisions, inclusions, and goals creates a more professional expectation among all parties.
5. Communicate Honestly. As more family members become involved, distrust and conflict can grow. Personalities change, expectations change, and goals change. Set a pattern from the beginning of being able and willing to discuss matters honestly with stakeholders. Include them in financial planning. Be honest about gains and losses. Don't let financial meetings devolve into unproductive arguments. And talk about how different members feel and their concerns. Only through good communication can everyone be heard and seen.
Where to Start
The best place to begin protecting your assets beyond the third generation is to work with an experienced wealth management planner. They'll help you make a plan, prepare for succession, boost communication, and develop a style that fosters professional transitions between generations. Make an appointment today to get started.
For more information on wealth management, contact a professional near you.
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