Wealth Preservation: Four Things to Know

Preparing yourself, and your children, for the future

For today’s affluent women, it’s more important than ever to be equipped with the knowledge and skills to manage your family’s financial portfolio so you can better protect both your family and wealth from generation to generation. This includes passing on the wealth you’ve accumulated to your children and grandchildren. Here are four ideas and best practices that you can put into place to successfully manage and preserve your wealth while building a lasting legacy for your loved ones.

1. Communication is Key
Many affluent parents tend to build generational barriers when it comes to finances; meaning, they do not accurately communicate the responsibility of wealth, and the importance of passing it on, until their children are mature adults. Without proper preparation for inheriting a significant amount of wealth, future generations may lose sight of the level of responsibility managing wealth requires. Most family wealth is created by a combination of hard work, visionary ideas and disciplined execution, and it’s important to instill these values in your children at a young age.

Parents should start talking to their children about money, and the family values associated with it, when they're young, instead of “crossing that bridge when they get there.” For parents who don’t find this palatable, they can try more creative approaches: try writing a mission statement about the legacy you'd like to leave, and what you hope your family wealth will accomplish in future years. When your children become young adults, you can share the mission statement with them; when they become older adults, this mission statement can help open doors to conversations on important topics like family philanthropy.

Generally speaking, the emotional impact of excess wealth on children, grandchildren and generations beyond can be a challenging hurdle that should be planned for and managed with the same care that is allotted to managing financial portfolios.

2. Timing is Critical
When it comes to wealth transfer, trusts have long served as a tax-efficient way to pass money from one generation to the next. Another benefit of a trust is that it can give parents a degree of control over how and when their beneficiaries will receive money.

Often, parents will choose life milestones (marriage, births, starting a business, etc.) as times to pass down portions of the trusts to their children. What parents sometimes don’t consider is that while these moments are times for congratulations, they are not always marks of financial maturity. Parents may consider replacing these life milestones with “maturity markers,” meaning, they can link trust payments to signs of their children’s ability to manage the money responsibly. These could include years in a professional career, attainment of a college or graduate degree, et cetera. Whether they're doctors, businesspeople or teachers, it's advised for parents to reward their children for finding purpose in their own lives, and at a time when they believe they are mature enough to handle significant money.

3. Importance of Wealth Management
To help ensure your family’s wealth is preserved and passed on to future generations according to your vision, it’s critical to take an active role in managing your financial portfolio. According to the 2010 World Wealth Report produced by Merrill Lynch Global Wealth Management and Capgemini, eight in 10 wealthy investors are now focused more on capital preservation and avoiding losses than on maximizing returns, and over two-thirds are looking for more consistent income from investments. According to the current Merrill Lynch Affluent Insights Quarterly survey, 46 percent of Chicagoans consider themselves to be conservative investors, and 24 percent of those admit that they don’t know that this approach could mean missing out on higher returns during strong market conditions.

Admittedly, the economic volatility of recent years has been hard on investors — both financially and emotionally. While many are in a conservative mind-set, now is a good time for them to look forward and confirm their portfolio allocation is in line with short- and long-term financial goals. This is especially important in light of the economic recovery, which has created opportunities for investors to position their portfolios for long-term growth. Keep in mind that asset allocation, diversification or rebalancing do not assure a profit or protect against loss in declining markets.

4. Knowledgeable Guidance Counts
Given the new conservative mind-set alluded to above, now, more than ever, it is important for wealthy families to work with a private wealth advisor who can help them make the most of the recovery. When it comes to wealth preservation, however, many times parents may not understand the importance of building inroads between their private wealth advisor, children and grandchildren. As a result, when older generations die, next of kin are left with questions about their parents’ financial picture and goals and with no one to turn to for answers. When parents believe their children are of the right age, they should consider introducing them to their private wealth advisor for personalized advice and guidance, above and beyond financial strategies, on how to understand and manage significant wealth.

Remember that values and discipline are two key factors in building and maintaining wealth. If you take an active role in managing your family’s portfolio, and communicate the importance of wealth to your children at a young age, your wealth will be more likely to prosper and grow to the benefit of the people you love the most, and throughout the next generations of your family. Keep in mind, investment products are not FDIC insured, not bank guaranteed and may lose value.

Tagged as: money, retirement, financial planning and wealth