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June 21, 2015

Study: 70% of intergenerational wealth transfers fail!

A Forbes article from a few years back claims that “70% of intergenerational wealth transfers fail,” discussing a new Williams Group study examining the long-term effects of wealth transfers in 3,250 families. (See http://www.forbes.com/sites/carolynrosenblatt/2011/12/09/wealth-transfers-how-to-reverse-the-70-failure-rate/)

According to the study, “failure” means situations where heirs dissipated wealth, often with the family assets becoming a source of friction and dispute.

The researchers were quick to note that poor professional advice was not the cause; to the contrary, the researchers noted that “[estate planning attorneys, investment advisers, and tax experts] usually did well for their clients.”

Instead, according to the study, poor family transition planning usually caused these failures. Put differently, “no one in the unsuccessful transferring families was preparing their heirs for the multiple kinds of responsibilities they would face when having to take over the reins.”

The common theme among the successful 30% was the identification and communication of long-term lessons and financial values and wisdom that pass along with the assets:

“A key component was to identify a family mission as well as a strategy to attain it.  The heirs understood that the family’s identified mission was about the family wealth.  With that known they were given the opportunity to practice their roles for the future, in philanthropy, the family business and other ventures at a more minor level than they would have upon the passing of the patriarch or matriarch who headed the family at the time.”

Most importantly, the report suggests that at the center of all successful wealth transfers is open and honest communication between family members.