Stages not ages: A new perspective on when heirs are prepared

By Amy Castoro, President and CEO of The Williams Group

This article is part of a series brought to you by RBC Echelon, a suite of private wealth management services for ultra-high-net-worth clients and The Williams Group, a consulting group focused on preparing families for wealth transfer.

“What is the right age to begin preparing my heirs to receive their inheritance?”

That’s a question we often hear from clients who have started thinking about transferring their wealth to their children, but don’t know when, or even where, to begin.

This is an important issue, because it’s not uncommon for the next generation to be overwhelmed by the prospect of inheriting significant wealth. In fact, 25 percent of wealth transfers fail because the heirs are simply not ready.

We worked with a family that experienced this. The family’s children, who were all well-educated and in their early-to-mid 30s, were each asked to start managing their own portfolios. The challenge, however, was that none of the siblings thought they would ever be as competent as their parents and were paralyzed by the task. The parents became increasingly frustrated at their children’s lack of interest in attending meetings with financial advisors, while the children became increasingly resigned at the fruitlessness of their labor. “I’ll never be able to manage this money as well as my parents,” they thought. As the years passed, the parents’ concerns increased along with the family tension.

One way to avoid this result is to think about preparing your heirs as six specific stages that you work through as a family rather than using age as a guide. I will use the example of the Quinns,¹ a family we worked with at the Williams Group, to demonstrate how this stage-based approach can work.

1. Awareness

At this initial stage, families are encouraged to focus on relationships and communication, and commit to a process that is broader than just understanding the financial elements of wealth.

The Quinn parents knew they needed to talk to their children about the family wealth but weren’t sure how to go about it in a way that would preserve family harmony. So they invited the entire family, including spouses and children over the age of 21, to a meeting to hear the next generation’s perspectives on wealth, discuss why it’s important to put in time and effort to learn how to transition wealth and develop a better understanding of everyone’s expectations and concerns around the transfer of wealth. This initial stage sets the table for the rest of the process.

2. Baseline

The focus of this stage is creating a baseline for levels of trust and communication, heir preparedness and alignment of family values. In doing so, the family can gain a better sense of their starting point, and then measure their progress as they move through the life cycle.

The Quinns set their baseline by hiring a third party to assess how well the family was communicating, how well they understood their roles and responsibilities and to establish whether they were all on the same page about the purpose of the family’s wealth.

3. Engage

By now, families should be comfortable enough with the topic of wealth to engage with each other on the issue, and begin to understand what’s working well and what isn’t.

After establishing their baseline, the Quinn family embarked on a Williams Group learning program to strengthen their ability to work together, better manage conflict and understand how to navigate challenging conversations going forward.

4. Mature

At this point, the next generation should have grown into their roles and responsibilities, deepening their skills while continuing to learn and refine their own purpose inside the family.

This is when the next generation of the Quinn family started to step into their individual roles. One sibling volunteered to form and participate in an investment committee with support from the family advisor, while another took on more responsibility for philanthropic decision making. Over time, their confidence grew and their ability to work through difficult situations increased.

5. Lead

The next generation has now reached a point where they have leadership responsibilities that drive the family legacy forward, and the wealth creator has shifted from primary decision maker to more of an advisory role.

As the next generation of the Quinns matured, the eldest child took over ownership of the family business while the others embarked on their own investment strategies. All of the children found a balance between living independent lives and working together to make decisions more quickly regarding their foundation.

6. Inherit

This is when the wealth transfer is completed, and the cycle begins anew for the third generation. When the Quinn parents passed away, the estate fully transferred to the children, who then began integrating their own children into family meetings to discuss and learn about their family wealth. The process now starts over at the awareness stage.

Starting with conversations

Each family’s situation will be different, and there’s no specific age at which an heir might be prepared to start this six-stage process. That’s because what it means to be “prepared” will vary depending on the size of the family, complexity of the estate plan, and individual standards set by the family. In some cases, heirs might be prepared at 18 when they’re expected to manage a budget for college, while for others it may not be until they’re in their 30s and able to focus on the family wealth.

If, on the other hand, you’re looking at a broader, and perhaps more impactful definition of “ready,” as in who they are becoming as a person, then we suggest the age can be as young as six years old. Even at that young age, children are learning about their world and what they care about. Engaging them in meaningful conversations at this point in their life, where they experience parents who care about their opinions and interests, can lay a powerful foundation for philanthropy.

Let me give you another example of a Williams Group client, a recently divorced mother with three children ages six, nine and 11 who wanted to start having intentional conversations to create a foundation for being a unified, wealthy family. Early conversations focused on what they appreciate about themselves and each other, and then moved on to what they care about individually and collectively as a family. One of the children said they had read a story about sea turtles and how they were in need of clean waters to swim in. By the end of the meeting, the mother had researched sea turtle rehabilitation locations and added it to her philanthropic activities.

Meanwhile, one of the other children said they wanted to provide books to kids who didn’t have any, and the third, with a love of dinosaurs, said they wanted to contribute to the local science museum. All of those ideas were captured in a picture, framed and hung on the playroom wall to serve as a reminder of the children’s interests.

These types of meaningful conversations invite the next generation’s perspective and can help encourage listening and open communication while also creating family engagement around shared values and philanthropy. By working together, families can create a mission statement to find common ground for governance and long-term plans.

Families may also want to consider incorporating an outside perspective to help identify or facilitate those important conversations. A family advisor can provide guidance on fostering open and honest communication, which will be crucial as you embark on the process of preparing the next generation to be responsible stewards of your family’s wealth.