In what will be the largest exchange of wealth in history, the current generation of Americans will transfer an estimated $41 trillion to heirs during the next 40 years.1 Yet with that remarkable sum comes a deep concern felt by millions of Americans about whether they?ll be able to pass along the necessary values to go with those dollars ? values about life, work and the meaning of wealth and what it can accomplish in the world.
According to the U.S. Trust Insights on Wealth and Worth? 2012 survey, while 67% of high-net-worth baby boomers say they plan to leave all or a majority of their wealth to children and family, only 32% are fully confident that their children will be able to handle an inheritance. And 72% believe their children will need to be 30 or older before they?re mature enough to handle their wealth.2
Such concerns go much deeper than dollars and cents. Indeed, a study by the generational research and consulting firm Age Wave found that 77% of baby boomers say it?s very important to pass along ?shared priorities? such as values, whereas only 10% assign the same importance to bequeathing financial assets or real estate.3
A Legacy of Learning
Educating young family members about wealth is the best way to prepare them to carry on a family?s values.
Philanthropy is a natural gateway to building a family legacy, but it is also just one part of a broader family conversation about the meaning and responsibilities of wealth. Many parents tell us they find the idea of transferring wealth unsettling because they are not sure the next generation is equipped to handle it. While the strong majority of high-net-worth individuals report that they intend to pass along the bulk of their wealth to the next generation, that hardly guarantees an enduring family legacy.
Even among close, supportive families, conversations about values or financial matters aren?t always easy or comfortable. While every family is different, experience tells us that the sooner you begin to make children part of the family legacy, rather than separating them from it, the better. What you choose to share ? and when, of course ? needs to factor in age and emotional maturity.
The time to start communicating is now. Once the conversation starts, families are likely to learn that, despite the wide range of ages and experiences of individual family members, they are all really more alike than different. They are already, in the best sense of the word, a family.
Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.
The challenge, of course, is finding ways to build a set of values strong enough to endure the passage from one generation to the next, and then to communicate those values in such a way that younger generations will embrace them. That?s the start of a family legacy.
The first key step to establishing a set of family values is becoming fully comfortable with your own.
One of the greatest tools in building a legacy that spans a family?s multiple generations is philanthropy. ?Philanthropy is values-based,? says Claire M. Costello, an executive in U.S. Trust?s Philanthropic Solutions group. ?It?s your value set writ large, and the highest articulation of what you stand for, what you find important and how you represent yourself in the world.?
THE UNIFYING POWER OF GIVING
?Family members are often far-flung,? says Gillian R. Howell, national head at U.S. Trust?s Philanthropic Solutions group. ?They may be scattered all over the United States or all over the world. They inevitably have differing views on social issues, politics and careers. But they can come together over philanthropy. Philanthropy can help unite them, and the family legacy gets stronger as a result.?
There?s a huge difference between a single gift or gesture and creating a lasting legacy that is more involved than making charitable gifts, Costello says. ?A legacy involves not only how you give, but also how you live, and is something you practice on a daily basis,? she says.
The first step to establishing a set of family values is becoming fully comfortable with your own, Howell and Costello agree. While that may seem obvious, Costello says, the very process of identifying your values, as an individual or as a couple, ?can be revelatory.?
ESTABLISHING A SET OF VALUES
The means by which a matriarch or patriarch begins to translate those personal values into a family-wide legacy are as varied as families themselves. Smaller families with especially strong, open communications might start with informal discussions. ?I encourage people to go home and talk about these things around the dinner table,? Costello says. ?Such discussions can be enlightening and meaningful, revealing things that individual family members value most.?
Other families, particularly those spread across the map, might prefer the formality of a family governance meeting. Many families hold a ?values retreat,? often facilitated by an outside advisor, with the goal of producing a succinct values statement articulating their most important shared beliefs. Almost inevitably, philanthropy serves as a point of common ground.
Just as important as getting the young to understand your perspective is understanding theirs.
While the elder generation can be the driver and the moral center of this process, attempts to impose values on others as a fait accompli may result in apathy or outright rebellion. If a family?s values are to survive, there must be buy-in from other members,? Howell adds. That means giving everybody a say in how a particular value, such as self-reliance, translates into specific philanthropic goals and actions such as alleviating world hunger. Ideally, family members have age-appropriate opportunities to become engaged in charitable activities ? be they financial power or volunteer opportunities where they can contribute more directly.
Just as important as getting the young to understand your perspective is understanding theirs. U.S. Trust, for example, holds workshops called Raising Philanthropic Kids. The idea is to help not just parents but also aunts, uncles and other adults to understand philanthropy and values from a child?s perspective. Legacies are often strongest when they are not imposed, but rather when they include ?room for flexibility and individuality, allowing family members to find their own personal and giving identities within the family context,? Costello says.
TELLING THE FAMILY STORY
In the end, the success you achieve in passing along values to the next generation will depend upon your ability to tell a compelling story that makes younger family members part of an ongoing narrative. ?We encourage clients to pass on their story ? how the family was built, how the money was made, the struggles they endured and what was important to them going back 50 or 100 years, and how those values are still important and as relevant as ever today,? Howell says.
Howell cites a family that decades earlier had built a successful business in Maine. Although the members were by now scattered across the United States, the matriarch, who still lived in the home state, made a point at each gathering of sharing the values built there.
?The story had such importance that the members decided at their annual meetings to focus distributions from the foundation on charities in Maine,? says Howell. ?That was where the values were based. When they came together, they researched the towns that previous generations had come from and made contributions to those areas.?
Indeed, location often plays a powerful role in fostering an enduring family legacy, and that sense of place can grow even more important as a family becomes more dispersed. One family of immigrants had settled in a major U.S. city, in which they established what became an iconic American business. The specific location served as a sort of touchstone for subsequent generations.
When the founding generation died, the children, then in their sixties and following markedly different paths in life, came together and formed a philanthropic foundation named after the location. ?To them, it represented the hard work and success of their forebears, as well as the values, joy and memories that went along with that,? Costello recalls.
A LEGACY STARTS AT ANY AGE
While a legacy is something people can begin instilling in the next generation while they are still young, Costello and Howell agree it?s never too late to start. One U.S. Trust client, in a classic American success story, had immigrated to the United States almost penniless from Eastern Europe and built a large, prosperous company. Yet that tale of personal triumph began to transform into a true family legacy only after his children were grown and raising their own families. The turning point came when the patriarch made a large donation to a hospital that, years earlier, had saved the life of one of his children. Somehow, the man felt incomplete. ?He couldn?t explain to his Americanized children and grandchildren, raised amid plenty, what it meant for him to be able to make that gift,? Costello says. ?They didn?t have the connectivity to understand how personal and important the gift was.?
Though he knew it was unreasonable, he even began to resent his children and grandchildren for their inability to understand what he had gone through. Then, encouraged by Costello, he began to tell his story to family members, in personal, one-on-one meetings. ?That really became a starting point for a family journey,? she adds.
Not only did the patriarch feel that he had shared crucial elements of his life and experience, but the children and grandchildren formed a whole new perspective on giving, and how giving tied into the family history. Thus a single act of philanthropy became the start of something enduring &mdahs; a true family legacy.
Institutional Investments & Philanthropic Solutions is part of U.S. Trust.
1Boston College Center on Wealth and Philanthropy, January 2003. bc.edu/research/cwp/features/wealth.html (Latest available data).
22012, U.S. Trust Insights on Wealth and Worth?
3?The Seven Myths of the American Legacy,? prepared by Age Wave for Allianz Life Insurance Company of North America. July 28, 2005 (Latest available data).
Some of the featured participants are not employees of U.S. Trust. The opinions and conclusions expressed are not necessarily those of U.S. Trust or its personnel. Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.
OTHER IMPORTANT INFORMATION
Case studies are intended to illustrate products and services available through U.S. Trust. The case study presented is based on actual experiences. You should not consider this as an endorsement of U.S. Trust or as a testimonial about a client's experiences with us. Case studies do not necessarily represent the experiences of other clients, nor do they indicate future performance. Investment results may vary. The investment strategies discussed are not appropriate for every investor and should be considered given a person's investment objectives, financial situation and particular needs. Clients should review with their U.S. Trust advisor the terms, conditions and risks involved with specific products and services.
The U.S. Trust 2012 Insights on Wealth and Worth? survey is based on a nationwide survey of 642 high-net-worth and ultra-high-net-worth adults with at least $3 million in investable assets, not including the value of their primary residence. Among respondents, 37% have between $3 million and $5 million in investable assets, 31% have between $5 million and $10 million and 32% have $10 million or more. The survey was conducted online by the independent research firm Phoenix Marketing International in March 2012. Asset information was self-reported by the respondent. Verification for respondent qualification occurred at the panel company, using algorithms in place to ensure consistency of information provided, and was confirmed with questions from the survey itself. All data have been tested for statistical significance at the 95% confidence level.