Advisors work to make sure oversized inheritances won't ruin their clients' kids

Are your advisory clients afraid that money will ruin their children?

If so, you’re not alone.

One of the most common concerns, Jordan McFarland, certified financial planner at SageSpring Wealth Partners, hears from his wealthier clients is that significant wealth could leave their children feeling entitled, lacking the drive or resilience that the parents themselves had to develop.

That’s because many of his clients grew up with fewer resources and believe that working for their success instilled values they fear could be lost if their children simply inherit wealth without understanding the effort behind it.

Along similar lines, James Diver, partner at Procyon Partners, said many of his high-net-worth clients are concerned the significant wealth they have accumulated could give their children a lack of drive and ambition. They worry that, without the proper values about money, they could end up thinking the wealth created is there to replace what they can do, rather than support it.

“I have helped a client who was worried that sudden wealth would negatively affect their child’s own career and success. They wanted them to be accountable and responsible about their own finances before they received significant sums of money in trusts,” Diver said.

Education is the foundation

Ideally, SageSpring’s McFarland believes the best approach is to have a joint meeting with the client and their son or daughter to open communication and set expectations. That said, he fully understands that's not always practical.

“In most cases, we help by educating clients about their options for passing down wealth, how different account types work, the tax ramifications both today and upon inheritance, and how thoughtful estate planning can offer the level of control they want over their assets. We design structures that reflect the parents’ wishes, aiming to pass down both assets and responsibility,” McFarland said.

Emphasized McFarland: “Education is the foundation for developing financial responsibility, no matter someone's age.”

For his part, Diver encourages clients to have their children reach out and engage him for financial planning conversations that are tailored to a young investor or mid-career individual. He also provides “milestone financial education” for certain ages.

“I make sure our clients are aware of the information we are sending their children as well so that the information does not just sit in a child’s inbox or folder. For families that want their children to be more involved, I provide them with frequent educational material and schedule one on one zoom calls to speak to them about their finances,” Diver added.

Teach values, too

McFarland also encourages clients to involve their children in activities that reflect their family values, such as participating in annual charitable giving. To further this idea, he hosts webinars and educational sessions where wealth isn't the focus, so kids can engage without immediately being exposed to net-worth figures.

Over time, he gets more specific, helping families think through how different portions of wealth might be designated according to the individual traits and readiness of each child.

Meanwhile, Diver helps clients create family vison statements that align their financial plans, trust structures, and estate plans with their broader values and goals for continuing their family legacies. In his view, the psychological and emotional aspects of wealth and the purpose behind the dollars and cents is important to discuss in family meetings.

“A lot of these conversations can be discussed without bringing up specific dollar values and potential inheritances. Financial goals can also be tied to lifestyle milestones like completing education, starting a business or being philanthropic,” Diver said.

Talk to your next generation

“One of the benefits of working with our team is our ability to serve multiple generations at once,” McFarland said. “We often help children of our clients get started with early, tax-efficient retirement planning, setting a strong financial foundation.”

When business ownership is involved, it introduces additional layers of complexity, as succession planning becomes crucial, according to McFarland. In those cases, he assists with structuring transitions that are “smooth, tax-efficient, and aligned with the family's long-term goals.”

Procyon’s Diver admits that advising multiple generations is one of the “toughest aspects” of advising a family with significant wealth. A balanced and thoughtful approach makes the process much more digestible for the multiple generations in his opinion.

“Tailoring each meeting to focus on different family members concerns helps keep the conversations moving in a positive direction. Creating meeting agendas and defining the objectives helps keep multiple family members engaged and focused,” Diver said.