Starting the conversation with your children about their inheritance is not an easy task. Something I know many ultra-high-net-worth families worry about is that their children’s ambition will falter in the knowledge of a future windfall. However staying quiet in an effort to raise financially independent children can result in them being unprepared for the wealth transfer and lead them to squander or mismanage it.
Therefore preparation is key and goes beyond having a well thought out will or estate plan. While important, these are just mechanisms to transfer assets whereby transferring principles and values is more important when preparing your children to manage their inheritance.
Responsibility needs to be a key part of the conversation and you shouldn’t need to worry about your children’s ambition waning if you help them to gain valuable life skills like perseverance and hard work. Encourage them to develop a strong sense of self worth and self esteem so that they won’t be satisfied with leading an idle life, instead they will want to lead a purposeful life. It is also worth remembering that children and young people learn from and look up to their parents and friends so setting them an example and demonstrating good values and a work ethic yourselves, as well as choosing schools that encourage ambition, will help to surround your children with people whose values you admire and children whose parents want the same for them.
Being open about family wealth with your children and the responsibility it comes with could be considered the first step in preparing them for their future wealth. For many of the UHNW families I work with, their wealth started many generations ago and therefore not only think about transferring assets, but also long-standing family values. Helping your children to understand the nature of your wealth along with how you and previous generations built and managed it will help them see the big picture and their role in it. Particularly in the case of multi-generational family wealth, encouraging heirs to feel like stewards of the family assets and values will help to create a sense of responsibility and that wealth should be preserved and not squandered since it should be passed on to future generations.
When considering these conversations, it may also be worth thinking about preparing your children for how to recognise and manage attempts at manipulation from others that can be made on those with money. Teaching your children to be able to spot when people are and aren’t looking out for their best interest is an important life lesson but is particularly useful for those with wealth. There is however a fine line between not wanting your children to be taken advantage of but also wanting them to be able to trust people and not lead a life clouded by suspicion.
Give Them Exposure
Giving your children some financial independence while they are young, whether through an allowance or by asking them to earn their spending money, can help them learn its value and how to take responsibility for it. As you will know, lessons about money are often best learned through experience. You may be interested to see what they decide to do with their money but you could also suggest or insist that they invest half of it while spending the rest.
Use a Trust
If you don’t already have one, creating a trust can often bring peace of mind about transferring assets, allowing you to set the terms upon which your children will be able to access or receive their inheritance whether based on life events, age or incentives.