When Do We Tell The Kids How Much We Have?

Wealth Continuity: Best Practices For Enterprising Families

One of the more frequent questions we receive from ultra-affluent families is, “When should we tell our kids how much we have?”.  While it’s not exactly a secret that many of these families live comfortable lives, the rising generation is often not fully aware of the extent of their wealth.

Without thoughtful consideration of how and when you share this information with your children, you could have an undesirable result. Your children may not fully appreciate the responsibility of knowing this information. They may struggle to understand what it all means or how it will impact their financial future. It’s even possible that this new information could drive undesirable behaviors or choices in their lives.

History has shown that the success of wealth continuity between generations can be threatened when families are not prepared and do not execute a thoughtful plan.

A thoughtful plan will involve structural considerations, planning to ensure tax efficiencies, various legal documents and agreements, and a plan to transition knowledge and skills from senior generations. Each piece is essential, as is the planning around when and how to share information.

Common Misconceptions

Before we jump in, let’s address a couple of the most common misconceptions about opening up to your children about your wealth.

Misconception #1: You will be giving up control of your financial world when you start to involve the rising generation

Truth: You will continue to have control over your wealth if that’s what you want. You are the conductor of this orchestra. What do you want it to look like, how much information will you share (now or in the future), will your children be involved in making any decisions, or would you prefer to begin increasing awareness for now? While you will be sharing some new information (and will let go of some control in the process), doing so increases your ability to control how the rising generation will manage. You can take comfort in knowing that these are the first steps towards successfully preserving your family’s legacy.

Misconception #2: You should decide when and how to share this information with your children. After all, you know your family best.

Truth: You do not have to take on this step alone. Seek the guidance and assistance of trusted professionals - an advisor you already work with, one who is familiar with your family enterprise and your family members. Or it may be best to work with someone new who has specific expertise in this space. Either way, you don’t have to do this alone. In fact, we recommend that you don’t do it alone

Three Best Practices

Whether you are considering sharing information about your wealth with your children for the first time, or you have already started this process and want to revisit your strategy and execution plan, here are three best practices for you to consider:

1. Readiness

Many wealth owners want to be the ‘one-and-only’ at the helm of their financial ship. They want to control what is and isn’t shared with others. Again, one of the challenges when involving the rising generation is putting your personal information ‘out there.’ You no longer have absolute control over that information, and so you need to have complete trust in your family members.

Consider the strength and resilience of your family; is there trust and willingness among members to work together towards a shared vision and set of financial goals? If the answer to this question is yes, your family may be ready. If not, you can take steps to build your readiness as a family. One step could be working with an advisor to understand and appreciate the dynamics among family members or working together as a family to develop your shared vision and goals.

As part of this, you will also want to consider what is going on in each family member’s life. Will they have the emotional energy and openness to embrace this information? Are they consumed by life events that may interfere with the productive sharing of this information? These are also essential considerations to help you assess your readiness to take this next step.

2. Financial Literacy

Another critical aspect to consider is the financial literacy of each family member. In other words, do they have a sufficient foundation of knowledge and skills to understand and deal with the information you will be sharing with them?

Consider each family member’s educational background and life experiences; will this provide them with the skills needed to travel the path you’ve been on as a wealth owner? Understanding the world of finance, embracing the responsibilities and roles they will have within your family’s enterprise, and knowing how to hire, work with, and fire professional advisors are all skills that support the success of your family’s wealth continuity plan.

There are many ways to close any gaps in knowledge; traditional financial literacy programs, a customized learning curriculum that can be completed at the learners’ pace, working in an industry relevant to your family’s enterprise, or even taking on a mentorship role within your family’s business. These steps will empower your children to take on the responsibilities ahead.

3. Thoughtful Planning

This is where the rubber hits the road. What’s the plan? How will it look? Here are five suggestions:

• Spend some time thinking about whether a ‘boardroom’ conversation or ‘dinner table’ conversation is best for your family. Separating 'business’ from ‘family’ is important for some families; it supports the distinction between the family enterprise and just ‘being a family.’  Other families prefer to keep these discussions informal, which may be better for your family – or better suited to the level of detail you choose to share.
• Discuss the importance of confidentiality. What, if anything, can be shared with spouses, other family members, or friends? Be clear about your request and your expectation for this to be respected. Doing so will frame the importance of what you are sharing and your trust in your family members.
• Consider sharing your family’s wealth history - where it came from, key players along the way, lessons learned, and key achievements. This context personalizes your family’s journey and makes it more than a family discussion that is ‘just about the money.’
• Think about your vision and goals - and communicate and work with your family on this. What is the purpose of wealth for you and your family? What goals do you want to achieve during your lifetime? What legacy do you want to leave behind? Discussing this with your family will support your ability to understand each other’s perspectives and work towards common goals.
• Keep in mind that the pace at which you share information is critical to the plan. Too much information too fast can be overwhelming and potentially diminish the importance of the process. You don’t need to share everything at once; you can start by laying a foundation to support what’s to come. Consider having these discussions over time. Slow and steady can win the race.

Taking The Next Step

We hope this information leaves you feeling more comfortable, empowered, and ready to make the best decision for you and your family. Whether you are just getting started or are well along in the process, the key is that you are thinking about it and commit to acting.

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Written by Angela Smith, Director of Family Office Services.