HEARD FROM CLIENTS: HOW DO I RAISE MY KIDS AMIDST WEALTH?
Heard from Clients Symposium: Findings from Our Conversation
We recently met with a group of clients and colleagues to discuss a challenge that many wealthy families face. We've all seen the worst: heirs of the wealthy and famous with everything who seem to value nothing. That may be typical, but we know it is never a goal, and we know many families who have successfully avoided that outcome.
Below are some key discussion points from our recent lunch-and-learn that featured a panel of expert speakers who offered tried-and-true practices that help wealth creators prepare their heirs to be good stewards of wealth.
Intentionality makes all the difference.
The families that succeed are often the families that act with intention about how they want their children to behave and treat wealth. In other words, they succeed because they had a plan.
A great starting point is to take stock of what you may be doing unintentionally. What values are you displaying to your children by your current lifestyle? Are you teaching them the values you want? Are you teaching them the values that helped you succeed? If not, what do you want them to learn from you? Once you have a list of the values you want them to have as adults, work to intentionally display and over-communicate those values to them. Remember that they won’t see the sacrifices you made earlier in life. For example, let’s say you want your children to know that nothing comes without working hard, but you also understand that you’ve made money by working hard for years and now you want to enjoy the fruits of your labor. To do this, you can still create opportunities to let them see you working now. For example, explain to them how much time you put into managing the family’s wealth. Alternatively, you can share with them the stories of how hard you worked when you were starting your career. Parents should also remember that, just like when you asked them to clean up their toys, children will need to hear about your values more than once. Be intentional in how you build that into their daily lives.
Focus on what matters.
Oftentimes, successful children report never feeling “rich” when they were growing up. They often knew there was wealth, but they firmly feel it wasn’t what was important to their family. Instead, their parents placed importance on school, family vacations and togetherness.
Wealthy families can proactively create this culture by speaking with children early on about the importance of education, saving money, living beneath their means and giving back to community and society. Parents can also actively demonstrate their own work ethic and modesty as an example of how to live.
Philanthropy is a cornerstone.
Philanthropy is about living with values in a physical, practical way. That’s why introducing children to the concept of giving is important in developing responsible stewards of wealth. For example, kids can donate toys to children in foster care here or orphanages overseas, allowing them to express the family’s ethos in a way that’s meaningful, tangible and age-appropriate.
Families can also use travel as a way to expose children to the realities of others and inspire them to act upon what they see. Including in the itinerary a visit to a local nonprofit or an afternoon of volunteering can bring the concept of giving closer to home.
When children learn they must use their money in three ways (spend, save and give), it sets them up for healthy money habits when there is more than a weekly allowance in their bank accounts.
Protect them from themselves.
It’s important to know the consequences – intended and unintended – that your estate planning documents may have on your children. Parents often set up trusts that distribute at preset ages.
Successful families often avoid allowing children access to the money too early. Make sure they have a firm understanding of money, either through education or practical application, or by working with a financial professional. Family retreats and/or conferences are great way to learn about the practical application of wealth. The more educated your children are (at any age), the better they will be equipped to steward their inheritance and potentially create their own wealth as well.
As an added measure of protection, we recommend clients consider adding a discretionary standard, so the trustee has more power to course-correct if needed.
Communication is always key.
It’s an old belief in the US that you shouldn’t talk about money, but we have seen the opposite to be true. Engage the entire family in discussions about budgets, major purchases such as homes, retirement and goals for the future. The more common this is, the less taboo it will be for your family in the future. When kids are young, these conversations should be kept to the basics. Young children should understand and see you apply discretion on spending in prudent ways. You might tell them that you were hoping to add another stop to a family vacation, but it would have been too expensive, so you decided not to. Or you could share with them that you have detailed plans for the home remodel, that you are working with everyone to make sure you spend only on necessary things and that all the expenses come under your budget. That could be a great way to say no when they ask to have a slide from their bedroom window directly to the pool.
As they get older, you can selectively begin to share more details with them. For example, you may actually review the remodel budget with a mature teenager or college-aged student. You still want to stress prudence and staying within your means, but you can probably be comfortable that your mature child won’t go running around the playground telling everyone how much your project is going to cost. Remember, the details are what matters to you, but it’s the values and messages that will matter most to your children.
One additional warning is that you need to remember that your children will fill in the blanks if you don’t. One person shared that his father used to play in a regular poker game and would regularly announce the results at breakfast the next day. His father would occasionally shake his head and gravely announce that he’d “lost big.” As a child, he figured this meant thousands of dollars and worried about their family’s well-being. Later as an adult, he nervously asked his father how much money he used to lose on those bad nights. His father laughed and said the most you could lose on any night was $40. Always remember you children will fill in the blanks, and they have better imaginations than you do.
Account for sibling differences.
Because kids are not all the same, they shouldn’t necessarily be treated the same way. This concept might go against parents’ first instincts, but it is often critical to the sustainability of family wealth. One child could be successful in his or her own right. Another could have a substance abuse problem. Another could have a disability. In many cases, “fair” may not mean “equal.”
Because the default option is to split the pot with the children evenly, our experts strongly advised parents who are choosing a different method of distributing their wealth to communicate their decision early. The earlier this concept is shared within the family, the more successful the message will become. For example, you may want to acknowledge to your children that one of the siblings needs additional resources due to a health challenge that might limit his or her ability to work and that you are structuring your estate to make sure that child is taken care of and does not create a burden on the other siblings. If you repeat this message often, your children will understand your intentions when the distribution breakdown is revealed.
If you don’t tell your children why you did something, they may never know. Conjecture is very hard on families. Transparency about how everyone is being treated leads to better outcomes. Lack of communication leads to conflicts and even litigation, which often damages the family forever. If you are not comfortable speaking directly with your children about these issues, enlist help and support from your advisors, or write each of your children a letter to be opened in private before the full will is read.
It’s all about the legacy.
Start by instilling early the lessons and values you wish to pass on. As your children get older, often around college age, begin to provide more information, but keep the focus on the family’s wealth and what that means to you. Try not to focus on each child’s personal inheritance because personalizing wealth should be avoided. It’s also the time to ask them what roles they want to play in the family. Family foundations are an excellent way to get children involved, as inheritance is part of the foundation model.
One expert recommended documenting the family wealth – the legacy, the story, the lessons learned on the wealth journey, history of the wealth journey, etc. This will help future generations explain who they are as a family and what the parents and grandparents hoped for the succeeding generations to have.
Not all gifts are from parents to children; we have seen children gifting to their parents, or sibling-to-sibling, nieces or nephews. Communication around these gifts is critical to both enhance the gift and to be sure they are received in the proper way.
If you intend to give funds to another family members’ children, communicating with the parents is very important. We have seen many well-intentioned gifts received negatively. For example, let’s say Charlie is going to surprise his sister Sally’s two kids with paying their college tuition when they are 18. Meanwhile, Sally and her husband have been saving and sacrificing for their kids’ college education and could have had family vacations and sent their kids to private school with the funds they had saved for college. The gift, while amazing, would have been nice to know early on so they could use their savings for other costs. Other parents might simply see it as an intrusion. Others may want to use the funds for something else, such as paying down debt or using it as a down payment for a better home. Just like any surprise, it could be received in a number of ways.
The other piece of wisdom around all gifts is, once you make the gift, never speak of it again. It could be awkward if someone says, “Did you use that money to buy the boat?” Once the gift has been given, it is the recipient’s decision to do whatever he or she wishes to do.
It’s never too late to start.
While it’s best to start early, it’s never too late to start the conversation, even if you’re already experiencing problems among family members. Every family has problems. Wealth just amplifies some of them. With a good plan, though, you can turn things around. Experts are available to help reboot and find a way to pivot.
A PDF of this column is available for download here.