Pioneer Wealth Management Group is a fee-only financial planning firm in Dallas and Austin, TX. We asked Milad Taghehchian from Pioneer Wealth Management Group to guest write for our blog this week.
Research has shown that 70% of families with substantial wealth lose most of it by the second generation. By the third generation, 90% of that wealth is completely gone – but why?
Thanks Milad for preparing this post for our readers.
No Preparation
Wealth is always a sticky subject, especially among the richest. Most wealthy families don’t fully disclose how much wealth they’ve actually amassed to their children. Instead, they’ve shown them how to live lavish lifestyles without educating them on the value of money. This can create a lot of issues, as they will eventually inherit that wealth and make very important decisions – often uninformed and unintelligent!
The following are some financial planning solutions that can prevent the squandering of inherited wealth.
Communicate Openly and Clearly
Address the elephant in the room. Your children need to understand the actual value of the family wealth after liabilities, most of which are paid out of the estate. The last thing you’d want for your children is to expect future inflows of cash, only to see it all go to your debts. They should have a clear understanding of where the family stands from a financial standpoint so that they can better formulate a financial plan for the future.
Next, educate them on financial literature. We recommend a fee-only financial planner who will keep your best interests in mind while also educating your children on smart money lessons.
Explain the Details of the Will
You don’t want to create unnecessary issues that will position family members against each other. Instead, have a meeting with everyone present and clearly explain the details of the will – who gets what, and why. Any issue that may arise in the future can instead be dealt with now, allowing you to establish a clearer financial path for the family’s future.
Create a Plan
Your wealth today is likely a result of your success, and there’s no reason your children shouldn’t bask in it for generations to come. Establish a clear investment plan that will allow your wealth to grow at a steady pace. Limit the amount of money taken out of the investments. Large sums of money should be seen as consistent, future inflows of cash, rather than one big chunk that can be used up today!
If you’re a Texas resident in the Austin or Dallas area, we recommend you visit a fellow fee-only financial planning firm. Check out pioneerwealth.com or call Pioneer Wealth Management Group at 512-334-6800.