Substantial Wealth: Intergenerational and Community

Anyone can leave money & assets; leaving a lasting legacy of your life is easier than you realise.

By Ian Byrne, Evolution Financial

With almost three decades of aiding high net worth and ultra-high net worth individuals and families, experience has shown me that a common deep abiding goal is to leave a worthwhile legacy for one’s family or the community, not just money or assets.

Reflect on your own journey to get where you are today. A lifetime of triumphs and tragedies, sacrificing, accumulating, making hard or smart decisions, learning from errors, and ultimately securing wealth or consolidating existing wealth – all this has its own story and should amount to more than just a Will divvying up numerical amounts amongst those left behind.

“It’s not a competition, no-one engraves your net worth on your tombstone. It’s about what you can do with it now and in the future, that matters”, one of the great lessons passed onto me many years ago by a substantially wealthy and insightful client.

Instead of just a Will, creating a legacy should tell your story, provide guidance and benefits from your life’s experiences, ensure security for your family for generations to come, and leave the world a better place from you having stepped upon the earth.

The Williams Group, a US-based firm of succession specialists, cite their 20 year research showing 70 percent of wealthy families lose their wealth by the next generation, and 90 percent losing it the generation after that. Many cultures espouse the conventional wisdom of “rags to riches and riches to rags” where family wealth doesn’t last beyond three generations; the initial generation creates the wealth, the second squanders it and the third sees none of it, or the variation, the first makes it, the second consolidates it and the third wastes it.

In her Forbes article on this phenomena, Carolyn Rosenblatt states, ‘None of the failed transitions could be blamed on poor legal preparation, inadequate financial advice, nor improper tax preparation. Rather, these professions usually did well for their clients.’

‘By contrast, the 30% of families who succeeded did so with broad and well thought out planning, preparing both children and grandchildren for their futures. A key component was to identify a family mission, as well as a strategy to attain it.  The heirs understood what 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.’

While a good estate plan allocates who receives your money, wealth & assets and who’s responsible for your affairs after incapacitation or death, most unfortunately do not provide generational guidance. Once the assets are allocated, the final return lodged and the estate wound up, in Australia that tends to be the end of it.

Rather than ‘ruling from the grave’, real life (pardon the juxtaposition play on words) client experience has shown two distinct successful paths:

For those with family members: providing clear direction and long-term familial intent, coupled with insights from your own experiences, future hopes for the family and a sense of philanthropy or communal assistance, helps create successful intergenerational plans. Put this together with targeted specific structures that legally assist to manage taxation consequences, provide ‘pre-death’ hands on guidance and family education, equalisation strategies or specifically goal-aligned/put-for-purpose strategies, all which can ultimately distribute wealth in a strategic asset protected manner can greatly assist in assuring success.

For those without family members or choosing not to leave all to them: specific philanthropic structures with well thought out guidelines and flexibility rather than just one-off ‘blind donations’, (also termed naïve donations, meaning directing your capital wealth to particular charities or community groups, oblivious to how they will actually be utilised, and normally completely spent within the first year). The philanthropic structures, such as Private Ancillary Funds, can ensure that generous annual ‘income’ donation amounts are directed to your chosen worthwhile causes, ensuring that the capital is preserved and potentially grows, thus over the long-term providing far more benefit in aggregate and can last in perpetuity.

Another US based succession wealth specialist, Brian Skrobonja, cites two historically famous family intergenerational wealth cases; ‘Cornelius Vanderbilt — whose famous last words to his family were, ''Keep the money together” — and John D. Rockefeller. The Vanderbilt’s didn’t follow their patriarch’s advice, and the family fortune dwindled away, but the Rockefellers heeded the advice and are now in their seventh generation of wealth with billions in assets.’

Notably, the Rockefellers also created the Rockefeller Foundation in 1913, a private philanthropic foundation, with seed capital of $100million and by July 2022 had distributed the equivalent of $22 billion in its history.

If you have significant wealth, the question is not only to whom or where will you direct it to on your passing, but what will it signify to those who receive it.

What does your legacy say about you, and do you in fact even have one?

For further information or a confidential conversation please contact the author.