Roy Williams and Vic Preisser, in their research and subsequent book “Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values,” highlighted the challenges and failures associated with the transition of family wealth across generations. Their research revealed a striking statistic: approximately 70% of intergenerational wealth transfers fail by the time they reach the second generation, and over 90% by the third generation.
Their findings were quite specific about the underlying reasons for this widespread failure:
Families often avoid discussing sensitive topics like money, inheritance, or succession plans. This lack of open communication can lead to misunderstandings and conflicts.
Successors often lack the necessary training, education, or experience to handle large inheritances or to run family businesses. The proverb “shirtsleeves to shirtsleeves in three generations” encapsulates this trend, where the first generation builds wealth, the second enjoys and perhaps mismanages it, and the third squanders what remains.
Without a clear, shared vision for the future of the family’s wealth and business, members can become rudderless or divided in their objectives, leading to potential mismanagement or conflict.
This includes the inability to adapt to external business challenges or personal life changes. Families that are not prepared to manage and adapt to change may see their fortunes diminish.
Poorly designed or outdated estate plans can be inadequate for preserving wealth or may not reflect the family’s current desires or situations. Additionally, relying solely on technical estate planning, without addressing family communication and heir preparedness, can lead to failures in wealth transfer.
What is more incredible is the degree of commonality between the various reasons amongst the researched families. The results of which can be highlighted in the diagram below:
The Reasons for Generation Financial Failure
When we examine the professional market today, we can find numerous and excellent provides of services ranging from legal, tax, fiduciary right through to financial planning. However how many of these providers focus on the real reasons why families fail to secure a legacy that thrives for generations – communication, preparation of the next generation and creating a family vision that inspires the family as a collective unit?
Roy Williams and Vic Preisser, in their research and subsequent book "Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values.
In the complex realm of securing generational financial success, recent insights from the 2023 Citi Group Global Family Office Survey reveal a concerning misalignment between family concerns and their corresponding actions.
Throughout history, several billionaire families have witnessed a significant decline in their wealth, whether due to economic downturns, poor investment choices, family disputes, or political shifts.
