Imagine spending your entire working life building a home you intend to pass on to your children. If you educate them about vital maintenance, such as checking the foundations, managing the plumbing and being vigilant about pest control, they can enjoy the home for the entirety of their lives and potentially even pass it on to their children. Conversely, without this education, the home is more likely to fall into disrepair. Maintaining this home’s legacy requires active participation and education to ensure it lasts for years to come. Yet, regarding a financial legacy, some think the concept of inheritance requires more of an ethical education (i.e., don’t spend it all in one place!) than a practical one.
The truth is that ensuring your heirs benefit fully from the financial legacy you seek to give them requires the same type of hands-on approach and education as one might see in caring for a family home. With the proper guidance, preparation and expertise at your disposal (such as accountants and financial advisors), you can prepare the ones you care about most to be responsible stewards of an inheritance while enabling them and future generations to benefit from your hard work and good fortune.
Defining a Collaborative Legacy
Before allocating dollars and cents, articulate your intentions to create a financial legacy. Your goal should be for heirs to be well-versed in the capabilities needed to benefit fully from your estate. Bequeathing an inheritance should start with intentional conversations that help you and your heirs develop a shared vocabulary and mutual understanding of key concepts.
To achieve this shared vocabulary, hold family meetings where you discuss goals for the inheritance in an environment that encourages open communication. This will foster a strong sense of ownership for the future of the family’s financial affairs.
Questions you may discuss include:
- What are the broad outcomes we are seeking to achieve?
- What values are we seeking to retain and elevate?
- What goals or objectives need to be met to achieve those outcomes?
- How can those goals be achieved in a way that aligns with our values?
Vitally important to the establishment of a legacy is the fostering of a shared understanding of values. To truly carry out any intentions, you and your beneficiaries will succeed most when your values and intentions are aligned. Shared values are important because managing an estate over years and decades will require your beneficiaries to make choices that are not always possible to foresee.
For example, if you intend for part of an inheritance to benefit animal welfare, consider what might happen if an organization you choose to support has to close or undergoes a fundamental transformation that undermines its original goal. Navigating this requires more than flexible language in legal documents; it requires an executor who can interpret your desires and ensure they are fulfilled in the best way possible amid an ever-changing world.
Understanding Stewardship
Effective stewardship can be a tricky thing. Statesman Edmund Burke once said, “If we command our wealth, we shall be rich and free; if our wealth commands us, we are poor indeed.” Effectively managing wealth over the long term requires discipline, prudence, humility, maturity and confidence. These values are difficult to instill without intention, which helps explain why too many stories of fortunes evaporate within a generation or even a lifetime.
Although you may have professionals who can help your family navigate complex financial matters, establishing a baseline of financial literacy with your next generation empowers the involved parties to understand the dynamics that could impact the estate’s health over time, such as markets, compounding interest and inflation. Financial education helps your heirs be active participants in the management of the estate, empowers them and builds confidence in their ability to exercise prudent decision-making in financial matters and fosters a greater sense of shared responsibility for the outcomes of their decisions.
Heirs are often subjected to endless decisions and situations that underscore the vital importance of a proper financial education. They may be in a unique position to invest in a promising startup, but doing so properly requires an understanding of concepts like “equity stock financing” or “exit strategy.” Some may think heirs to sizable estates hardly need access to credit, yet it is enormously beneficial to understand how assets can be used as collateral and the importance of credit history in fueling future ventures. If your heirs understand why Einstein called compounding interest “the eighth wonder of the world,” they are much more likely to have the clarity of vision necessary to act as effective stewards for an inheritance over the long term.
For complex holdings and estates, it is even more critical to ensure every stage of this process is meticulously considered to ensure the highest likelihood of your intentions being fulfilled. Typically, these include the support of one or more professionals, including financial advisors, trustees, attorneys and others with domain expertise to help you realize your goals.
Responsibilities & Risks
In today’s society, information moves rapidly. One bad decision can lead to distrust in the estate, causing reputational, social media and business risks. For inheritors of large fortunes, this means they must carefully consider how they appear in popular and social media. Transparency, oversight and ethical practices help mitigate risks in business affairs. It’s best to prepare how to navigate any and all legal, compliance, regulatory and social considerations to safeguard both the trust and the family’s reputation.
Beyond the Legacy
Preparing your heirs to inherit the responsibility of a financial legacy requires time, education and resources. Empowering them with astute judgment and the requisite financial knowledge to manage an estate will ensure the benefits they’re fortunate enough to receive are amplified to the maximum. During difficult moments, heirs who are properly prepared can tap into a shared vocabulary of values and goals to help them navigate the unexpected. Approached and managed with intentionality while teaching practical strategies, you can secure a future where the metaphorical house you’ve built will end up standing even stronger than when it was first built.
