Preserving Family Wealth: Open Communication is the Key

09.02.2021 - Juliana Karnavas

Explaining what wealth means to you can be a daunting task, especially when you are trying to convey those views to younger family members who will inherit that wealth some day.

But avoiding these conversations has consequences. Older generations often worry about avoiding the old curse of “shirtsleeves to shirtsleeves in three generations.” In other words, losing wealth by the time it is handed down to the third generation. Yet the real opportunity that’s lost when you don’t engage younger generations is in failing to help them develop their own understanding of what wealth means to them.

Answering these four questions will help you start a conversation about family wealth that goes well beyond dollars and cents.

1. Where Did Family Wealth Come From?

Explaining how your family accumulated wealth can be the easiest way to start the conversation. Younger family members usually have a general understanding of the family’s financial background, but they may not know the details about your family’s history.

Family history is seldom all positive. But don’t shy away. Delving into the good and the bad is exactly what provides the opportunity for open communication between generations. It also challenges all generations to work toward their own understanding of the values they want to continue. 

Sharing your family’s story with younger family members may give them a sense of tradition and an appreciation for the wealth they will inherit. It may aid in their understanding of their role as responsible stewards of family wealth. It can also help younger generations identify change they want to effect and the purpose they want the family wealth to fulfill in their own lives.  

2. What Has Family Wealth Accomplished?

One way to help younger generations make a connection with family history is to explain how earlier generations used their wealth to pursue professional, personal or philanthropic goals.

This focus can lead to more targeted discussions about values and priorities in life. It can also encourage younger and older family members to express their true feelings about the purpose of wealth. This can go a long way toward giving the next generation a sense of responsibility for what they may inherit, even when your goals and theirs may not align.

3. How is Your Family Using Wealth Now?

Your family’s goals and priorities will evolve throughout the years—and so will the views of younger generations as they mature. Providing younger generations with an appropriate level of understanding about the nature of the family’s wealth is an important part of this process.  Make sure younger family members know how they can be actively engaged in how your family is using your wealth in the present.

This can be as simple as engaging younger generations in budget or expenditure discussions or spending time at the family business or properties.   

If younger family members live in different parts of the country, consider expanding your family’s philanthropic efforts into the geographic areas where they live and work. If they are concerned about certain social issues or protecting the environment, consider involving them in discussions on weaving ESG (Environmental, Social and Governance) factors or impact investing strategies into your family’s investment portfolio. This will send a clear message that your family is interested in their unique interests and passions.

4. What Are Your Goals for the Future?

What impact do you want your family’s wealth to have on younger generations? Too often, younger generations don’t explicitly hear about their forebearers’ goals until after the older generation is no longer there. Take the time to write down your goals and challenge yourself to say it positively, as opposed to simply what you want to avoid. 

Next, share your goals with your children and younger generations and be prepared for an open conversation around where your goals and their goals may not align. Keep in mind that those discussion can have the greatest impact.

And last, make sure you have the structures in place to fulfill your goals as they develop. This can range from formal or informal mentoring, a well-articulated estate or business succession plan, a family mission statement or the governance structure for the family philanthropy. These structures provide younger family members with a framework to guide them as they take on more responsibilities.

Share the Lessons You’ve Learned

Open and honest dialog about your family’s history, values and vision for the future are all effective ways to pass along your family’s wisdom about wealth and its ultimate purpose. Tell your heirs about the smart decisions—and the mistakes—you and your predecessors made along the way. In other words, tell them the things you wish someone had told you about wealth when you were their age.

Fiduciary Trust Company International and subsidiaries (doing business as Fiduciary Trust International), Fiduciary Trust Company of Canada and FTCI (Cayman) Ltd. are part of the Franklin Templeton Investments family of companies.

This communication is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.

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