How to Keep It All in the Family

I read recently where Jamie Johnson, an heir to the Johnson & Johnson fortune, shared in his documentary “Born Rich” that he was clueless about the extent of his family’s wealth until a classmate told him (and the rest of his class) that his father was listed in the Forbes 400.

According to a 2012 study by U.S. Trust, more than half of high net-worth boomer parents have not fully disclosed all the details of their wealth to their children. Another 13 percent have not discussed their finances at all. This lack of communication could be the root of the “shirtsleeves to shirtsleeves” phenomena.

Amazingly, research shows that family money rarely survives the generational transfer. In fact, 70% evaporates by the end of the second generation and, by the end of the third generation, 90% is gone.

How do heirs find themselves in shirtsleeves? Researchers at the Williams Group, a family-wealth consultancy based in San Clemente, California, surveyed more than 2,000 affluent families over 20 years. High taxes and poor investment advice were not the biggest factors in the boom to bust movement. Sixty percent of respondents identified a “trust and communication breakdown among family members” as the biggest culprit.

Of course, many parents fear that if they tell their kids about the money too soon, they will create spoiled, entitled children. That’s not always the case. I find that when we talk about money with children – and provide education and guidance –  we provide the foundation for the next generation to become responsible stewards of their family’s wealth.

With what the Boston College Center for Retirement Research estimates will be a $7.6 trillion transfer of wealth to the boomer generation, our work with families will become more important.

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