Ages 20 to 35 are crucial years for young adults to emerge as family leaders. Setting them up for success is a process much more than a single conversation.
Kristen McNamara, Banker
Erika Shaw, Family Governance Advisor
Jamie Hackleman, Senior Philanthropy Advisor
We’ve witnessed it many times: High-net-worth families assuming a trust, family business or foundation will naturally create the structures and opportunities for the next generation to emerge as mature leaders. Yet entities alone do not necessarily prepare heirs to handle wealth in an informed and judicial manner. In fact, the majority of our clients cite family dynamics over investment and economic concerns as the biggest threat to the successful transfer of wealth across generations.
We have found that the thoughtful use of estate planning structures—combined with clear and consistent family communication—sets up the next generation for the opportunities and challenges ahead, while helping parents to clarify their own values and intentions and to realize their goals.
As you gather with family this summer, begin building a “wealth runway” for your adult children to enhance the likelihood that the next generation will sustain your family’s wealth in a meaningful way.
Understanding “money silence”
Before discussing how to build a wealth runway, let’s consider a real-life example absent of planning and education. In the final, busiest days of wedding planning, a bride-to-be’s parents told her, “We need to talk.” She would soon be signing a prenuptial agreement requiring financial disclosures. “There are some things you should know about the K-1s,” her father said. When she responded “What’s a K-1?,” her father handed her an envelope containing complex tax return Schedule K-1s listing her share of family partnership income representing significant wealth. “Everything’s in here,” the father answered, leaving his daughter with more questions than answers and without enough time to process this important financial information.
Providing your adult children with information regarding your family’s resources earlier rather than later will allow for thoughtful discussion and a mutual understanding when it comes to your short-term and long-term goals. Open communication about family wealth can inform a child’s choice of vocation and support a child’s ability to pursue certain passions.
Money silence is common and understandable. Among the many reasons is the fear it could dis-incentivize children and young adults. However, imagine a medical emergency that incapacitates the family’s decision maker. The next generation may be thrust into “power” when unprepared to lead. How will the family’s entities fare in such instance? How might the family dynamics suffer?
Think of it this way: You’ve prepared your wealth for your family. Have you prepared your family for its wealth?
Your J.P. Morgan team can help you develop a wealth runway for your adult children that both honors your wishes and achieves your vision:
Step 1: Envision the destination and guide your children toward wealth literacy
Parents don’t need to reveal the full balance sheet or immediately hand over the leadership reins. Instead, start to define your long-term aspirations for the family to guide what is required to successfully prepare heirs by asking yourself the following three questions:
- What would success look like for your family in 10 years, in 20 years and in 50 years?
- How do you expect your family to use its wealth? Does that align with your intent?
- What personal values do you want to pass on to your children and/or grandchildren?
Step 2: Clarify and communicate the intended use of your family resources
An affirmation of values, expressed as a family motto or mission statement, can help articulate how the family intends to use its resources (e.g., “We value experiences, not things”). This lays a foundation for the next generation and will inform their decision making, whether parents and grandparents are around or not. Examining the following three questions can help articulate the purpose of your wealth:
- What or who are you setting aside wealth for?
- What are your dreams and aspirations?
- What do you want to avoid?
Share your answers to the above questions with your children in order to give them a better understanding of what the family will and will not underwrite, which will allow them to plan accordingly.
Step 3: Establish baseline skills to be cultivated over time
Identifying competencies and responsibilities that come with financial wealth can provide a roadmap for learning and education. To identify a set of wealth-education milestones, we suggest asking yourself:
- What behaviors, attributes and values do I want my children to exhibit, now and in the future?
- What concerns, if any, do I have about each child’s ability to manage resources independently?
- What financial, investment and philanthropic topics do I want each child to understand and learn more about?
How your J.P. Morgan team can help
Once you lay out your family goals and vision for the future, your J.P. Morgan team can activate a plan to help achieve them. From our numerous educational series to live, next-generation networking events and personalized guidance by your dedicated team, we stand ready to help map out a meaningful wealth runway.
