5 Keys to Preparing the Next Generation to Receive Wealth
- Interchange Capital Partners
- Aug 16, 2022
- 6 min read
Updated: Jan 15
August 17, 2022 by Interchange Capital Partners
By Ahmie Baum, CFP® CFBA
Transferring wealth between generations involves more than legal documents and tax strategies. Yes, making sure you have the proper documentation and estate planning vehicles in place is important when preparing the assets for transfer. But in my work with family businesses, I've observed that successful transitions depend equally on preparing the next generation for their future responsibilities.
Here are 5 steps that contribute to effective family business transitions.
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
Transitions in family businesses often come with unique challenges, as they involve managing the needs of the business, the family, and the next generation simultaneously. At Interchange Capital Partners, we’ve worked for years with families to navigate these transitions by fostering clear communication to keep everyone aligned. We also assist in preparing the next generation for leadership roles while developing governance systems to support the business’s operations. During periods of change, we provide guidance to help families make informed decisions.
Contact our family business advisory team at team@interchangecp.com or 412-307-4230 to discuss your family's transition planning needs.
About Ahmie
Ahmie E. Baum is the founder and executive chairman of the board of Interchange Capital Partners, a premier family business advisory firm committed to empowering family-owned businesses. With over 45 years of experience, Ahmie specializes in guiding families to safeguard and grow their wealth through our strategic Clarity Foundation™.
Passionate about helping multi-generational family businesses, Ahmie excels at navigating their unique challenges, allowing them to focus on what they do best. One of his greatest joys is getting to know the firm’s clients personally, listening to their stories, understanding their journeys, and identifying and solving for the challenges that keep them up at night.
Ahmie collaborates closely with clients to help design comprehensive plans that address their obstacles, seize opportunities, and leverage their strengths. As he manages each family's complex and unique situations, Ahmie takes on their challenges as his own, fully committed to helping them work toward achieving their goals. His mission is to guide clients through their uncertainties, enabling them to move beyond their fears and confidently pursue their dreams.
Ahmie began his career at EF Hutton in 1979, eventually rising to the position of Senior Vice President. In 1993, he transitioned to Paine Webber, later acquired by UBS, where he spent nearly 27 years. During this time, he earned an Executive Certificate in Financial Planning from Duquesne University and obtained his CFP® designation. He holds a Certificate in Family Business Advising (CFBA) from the Family Firm Institute. He has been actively involved with Strategic Coach, an internationally renowned entrepreneurial coaching program, for over 20 years. Additionally, he has earned certificates from The Growth Institute, specializing in business growth, scaling, and cash management.
When he’s not working, Ahmie enjoys spending time with his wife, Sara, their three children, and three grandchildren. He recognizes that health is wealth, so he has committed to daily yoga, meditation, and plant-based eating. His other hobbies include woodturning, golf, reading, listening to music, and biking. He is active in his community, has served as the Foundation Chair of the Jewish Federation Community Foundation of Greater Pittsburgh, and supports various philanthropic endeavors. To learn more about Ahmie, connect with him on LinkedIn.
Interchange Capital Partners, LLC, (“INTERCHANGE CAPITAL PARTNERS”) is a registered investment adviser with the Securities and Exchange Commission providing investment advisory and financial planning services. Any reference to the terms “registered investment adviser” or “registered” does not imply that INTERCHANGE CAPITAL PARTNERS or any person associated with INTERCHANGE CAPITAL PARTNERS has achieved a certain level of skill or training. A copy of INTERCHANGE CAPITAL PARTNERS’s current written disclosure (ADV 2A Firm Brochure) discussing our advisory services and fees is available for your review upon request. INTERCHANGE CAPITAL PARTNERS, in addition to providing investment advisory and financial planning services, provides business consulting services. In connection with its business consulting services, INTERCHANGE CAPITAL PARTNERS does not provide tax or legal advice.
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