• Ciaran Burks

Preserving Generational Wealth: Leaving a Legacy

Why preserve wealth?

The American Psychological Association (APA) notes that in 2008 – following the collapse of the world financial system – that money and the economy are the largest stressors for 80% of Americans. Psychological research further indicated that women suffer physical symptoms of stress more often than men. Now, as in 2008, with COVID-19 ushering in a period of economic turmoil, money will be causing stress for millions of people. As a spouse or parent, you want to look after the wellbeing of your children, and if possible, your grandchildren. Preserving generational wealth has the remarkable opportunity to significantly reduce the stressors of modern life and provide the space to pursue social goods and personal passions.

The next 50 years will see the greatest transfer of wealth in history, according to some experts. The William’s Group (www.thewilliamsgroup.org), conducted a 20-year study that indicated that 70% of families lose their generational wealth due to poor communication and infighting . In fact, up to 90% of affluent families lose their wealth by the 3rd generation.

By preventive this decline, a family can build generational wealth that: 1. Alleviates the stressors money can cause 2. Provides opportunities for children to pursue their interests and talents 3. Builds philanthropic enterprises that improve the world 4. Allows ethically driven investment, e.g. climate change investing.

How to preserve generational wealth

1. Have a common purpose In a study published by the Wharton Business School , the authors show that affluent families, with the help of a single-family office, who rally together against financial crises, political turmoil and war consistently have a long-term vision for the future of their family and the difference it seeks to make in the world. This difference can be affected through successful business, philanthropic pursuits, or public responsibilities. Williams and Pressier (2005) illustrate the importance of philanthropy in preparing the next generation of post-transition responsibilities. Developing the initiative and responsibility of the next generation is vital for staving off entitlement and financial ruin.

2. Remember Genghis Khan Historian’s differ in their views of the Mongol Empire, but all agree that Genghis Khan’s focus on meritocracy played an important role in the empire’s rapid and unstoppable expansion in the 13th and 14th century. Genghis Khan awarded positions of honour on the basis of bravery, outstanding loyalty or effectiveness in a given role. This contradicted the monarchical (rights based on birth) system of the time, and allowed the Mongolian military (along with its superior missile cavalry) to decimate its opponents. Similarly, avoiding nepotism in single-family offices and allowing investment professionals to focus on specific tasks enhances their performance and the performance of the family fortune.

3. Keep it simple, stupid (KISS) In order to keep the governance of the family affairs manageable, experts recommend limiting the number of holding companies and corporate complexity as a whole. Family governance is important in aligning investment professionals with a family’s value system and contributes significantly to the success of inter-generational wealth transfer. References

Amit, R., Liechtenstein, H., Prats, J., Millay, T., & Pendleton, L. (2007). Single Family Offices: Private Wealth Management in the Family Context. Philadelphia: Wharton Business School.

Castoro, A. A. (2015). Wealth Transition and Entitlement: Shedding Light on the Dark Side of a Charmed Life. The Journal of Wealth Management.

Martin, S. (2008, December). Money is the top stressor for Americans. Retrieved from APA: https://www.apa.org/monitor/2008/12/money

Weatherford, J. (2004). Genghis Khan and the Making of the Modern World. New York: Three Rivers Press.

Williams, R. O., & Preisser, V. (2003). Preparing heirs: Five steps to a successful transition of family wealth and values. Author's Choice Publishing.

Williams, R., & Pressier, V. (2005). Philanthropy, Heirs & Values: How Successful Families Are Using Philanthropy To Prepare Their Heirs for Post-transition Responsibilities. Author's Choice Publishing.

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