Recently, we spotted this article on the difficulties of inheritances on LinkedIn.com by Robert Pagliarini. We’d like to share this thought provoking piece, which is about how to deal with the assets you are going to leave behind — an incredibly complex issue that needs great consideration. As American financial advisor and author Tim Maurer says: “Personal Finance is more Personal than Finance!”
Inheriting Money: Why Anderson Cooper Says No Thanks
CNN news-show host Anderson Cooper is the son of Gloria Vanderbilt — a successful fashion and interior designer and daughter to the Vanderbilt railroad and shipping empire who is believed to be worth $200 million. Is Anderson chomping at the bit for an inheritance? No. Here is what Anderson said this week in an interview with Howard Stern:
“I don’t believe in inheriting money,” he said. “I think it’s an initiative sucker. I think it’s a curse,” Cooper went on to say. “Who has inherited a lot of money that has gone on to do things in their own life?” When Stern reminded him that his mother did this Anderson responded, “I think that’s an anomaly.”
What is your view of inherited money? Is it an “initiative sucker” or can it be used to create a better and more fulfilled life? In my work with clients I’ve found that the answer is a resounding YES. Yes it can cause some to lose their drive and ambition, but with the proper work and structure, those who inherit can use the money as a tool to create meaningful lives of their own.
Why Does Family Wealth Fade
Many are the stories of family wealth lost. In the late 19th century, industrial tycoon Cornelius Vanderbilt amassed the equivalent of $100 billion in today’s dollars – but when 120 of his descendants met at a family gathering in 1973, there were no millionaires among them.
Barbara Woolworth Hutton – daughter of the founder of E.F. Hutton & Company, heiress to the Woolworth’s five-and-dime empire – inherited $900 million in inflation-adjusted dollars but passed away nearly penniless (her reputed net worth at death was $3,500).
Why do stories like these happen? Why, as the Wall Street Journal notes, does an average of 70% of family wealth erode in the hands of the next generation, and an average of 90% of it in the hands of the generation thereafter? And why, as the Family Business Institute notes do only 3% of family businesses survive past the third generation?
Lost family wealth can be linked to economic, medical and psychological factors, even changes in an industry or simple fate. Yet inherited wealth may slip away due to a far less dramatic reason.
What’s more valuable, money or knowledge? Having money is one thing; knowing how to make and keep it is another. Business owners naturally value control, but at times they make the mistake of valuing it too much – being in control becomes more of a priority than sharing practical knowledge, ideas or a financial stake with the next generation. Or, maybe there simply isn’t enough time in a business owner’s 60-hour workweek to convey the know-how or determine an outcome that makes sense for two generations. A good succession planner can help a family business deal with these concerns.
As a long-term direction is set for the family business, one should also be set for family money. Much has been written about baby boomers being on the receiving end of the greatest generational wealth transfer in history – a total of roughly $7.6 trillion, according to the Wall Street Journal – but so far, young boomers are only saving about $0.50 of each $1 they inherit. If adult children grow up with a lot of money, they may also easily slip into a habit if spending beyond their means, or acting on entrepreneurial whims without the knowledge or boots-on-the-ground business acumen of mom and dad. According to online legal service Rocket Lawyer, 41% of baby boomers (Americans now aged 50-68) have no will. Wills are a necessity, and trusts are useful as well, especially when wealth stands a chance of going to minors.
Vision matters. When family members agree about the value and purpose of family wealth – what wealth means to them, what it should accomplish, how it should be maintained and grown for the future – that shared vision can be expressed in a coherent legacy plan, which can serve as a kind of compass.
After all, estate planning encompasses much more than strategies for wealth transfer, tax deferral and legal tax avoidance. It is also about conveying knowledge – and values. In the long run, nothing may help family wealth more.