5 Keys to Preparing the Next Generation to Receive Wealth

By Ahmie Baum, CFP® CFBA

Passing wealth to the next generation is about more than just estate planning. Yes, making sure you have the proper documentation and estate planning vehicles in place is important when preparing the assets for transfer. But preparing the assets without also preparing the next generation is a costly mistake that should be avoided.

Here are 5 steps you can take to help the next generation feel confident and prepared to receive family wealth.

Assess Your Family Capital

The first step in preparing the next generation is to assess the five dimensions of family capital. At Interchange Capital Partners, we work with clients to determine their current financial situation and plan for their family’s future.

Through in-depth conversations, we focus on how the various aspects of family capital affect the ability to maintain the family legacy for generations to come.

Family capital consists of 5 categories, including:

Financial capital: This category encompasses the financial aspects of the family, including assets, liabilities, and business interests.
Intellectual capital: Everyone has formal or informal education, life experience, or trade knowledge that can be shared with all generations.
Social capital: This includes relationships inside and outside the family.
Human capital: Each member of the family brings their own unique personality to the equation. This includes their likes, dislikes, hopes, fears, and passions.
Spiritual capital: At the core of each family, this involves your most meaningful values, beliefs, and faith and the desire to live in accordance with them.

Many times, financial capital is the only topic of conversation when it comes to passing wealth to the next generation. But identifying both the importance and the effectiveness of each of the four remaining capitals can improve the long-term outcome of your family’s legacy. We create actionable steps to enhance your family’s overall capital and prepare the next generation to carry on the torch.

Communicate Your Family’s Living Legacy

It’s not uncommon for the first generation to withhold the details of their wealth from the next generations. If you do try to share the particulars, many times the younger generations aren’t interested in learning the specific details about the estate or family legacy. This can be a real challenge when passing on wealth, as the younger generations will not necessarily appreciate the hard work, dedication, and sacrifice that went into building the family’s legacy.

To help combat this issue, we recommend that the first generation communicate the family’s living legacy early and often. This can be accomplished by being intentional about what you are passing on and why. For instance, ask yourself:

What do I want to be known for (my individual legacy)?
What do I want my family to be known for (my family legacy)?
What is my family’s definition of success?
What is one of the most important lessons I have learned in my life that I want to share with my family?
As I think about my resources, what do I hope they help my family accomplish and experience in life?

Going one step further, you can create a purpose and vision statement. Make a list of items included in your estate and outline what it is meant to do and what you hope it will accomplish.

For instance, if you have individual trusts set up for family members, the purpose might be to supplement each person’s lifestyle while your hope might be that your family is able to enjoy nice things, travel, and have fun without worrying about money in the future.

If younger generations are exposed to this level of transparency, it will help them feel more connected to the wealth they are receiving and less likely to squander it in your absence.

Create a Shared Family Mission Statement

It takes more than just communicating your family’s legacy to successfully prepare the next generation to receive wealth. It also takes family buy-in, which comes from creating a shared family story and mission statement. We recommend and facilitate family meetings between both the older and younger generations to discuss the mission statement and overarching family values. It’s important to clearly define how all the generations see their legacy both now and in the future.

Family meetings help facilitate open communication of your family’s values. Sometimes it is the very first time families have had the chance to fully express their feelings, fears, and desires around wealth. These discussions will create much deeper family relationships, allowing the younger generations to truly buy into the family mission statement because they helped create it.

The older generation is also able to pass on their knowledge, values, and goals, providing their family with a road map that can be used to navigate the many financial decisions they will need to make on their own in the future.

Don’t Surprise the Next Generation

One of the most important things to keep in mind as you prepare the next generation to receive wealth is that surprises are the enemy of preparation. The worst thing you can do for the next generation is surprise them.

They may be doing their own financial planning without the understanding of what kind of wealth will be coming to them. This can create costly consequences down the line, particularly when it comes to estate tax. Be open, honest, and transparent about what the next generation will receive, even involving them in the financial planning as the transfer of wealth approaches.

Make Sure Everyone Is On the Same Page

These ongoing family conversations are just one step in the estate planning process, but they are a critical component of making sure everyone is on the same page. All generations should understand the family’s wealth and legacy so that it can last for generations to come. Working with an experienced wealth manager is a great first step.

At Interchange Capital Partners, we have the tools and expertise to guide your family through the transition of wealth. To learn more about how we can help, email us at team@interchangecp.com or call our office at 412-307-4230 to schedule an introductory appointment.

About Ahmie

Ahmie E. Baum is the CEO and founder of Interchange Capital Partners, an independent registered investment advisory firm providing collaborative, comprehensive, and disciplined wealth management around Transition Planning Unlocking a Lifetime of Work. With over 40 years of experience, Ahmie specializes in serving individuals, professionals, and family-owned businesses, helping them manage the complexity that comes with their unique circumstances. He is known for giving his clients guidance, education, and resources to make wise financial decisions that help them protect their wealth while achieving their goals. Ahmie and his firm strive to go above and beyond with their unparalleled client service and family office services that help their clients experience confidence in their future.

Ahmie graduated from the University of Pittsburgh with a bachelor’s degree in psychology and holds the Executive Certificate in Financial Planning from Duquesne University School of Leadership and Professional Advancement. He is also a CERTIFIED FINANCIAL PLANNER™ professional. He recently received the Certificate for Family Business Advising (CFBA) from the Family Firm Institute. He spent 42 years working at EF Hutton and UBS, where he earned the prestigious Wealth Advisor designation. Nationally recognized, Ahmie has been named in the past to the Barron’s Top 1,000 Financial Advisor List. When he’s not working, Ahmie enjoys spending time with his wife, Sara, their three children, and their granddaughter. He also enjoys investing in his health through yoga, meditation, and plant-based eating. His other hobbies include woodturning, golf, reading, listening to music, and biking. He is active in his community and serves as the Foundation Chair of the Jewish Federation Community Foundation of Greater Pittsburgh and supports the Big Brothers Big Sisters of America (BBBS). To learn more about Ahmie, connect with him on LinkedIn. You can also watch his latest webinar on The Hidden Dangers of Not Having an Exit Plan.

Interchange Capital Partners, LLC, (“INTERCHANGE CAPITAL PARTNERS”) is a registered investment adviser with the Securities and Exchange Commission providing investment advisory and financial