Motivate And Train The Next Generation To Safeguard And Build Upon Your Legacy
“How do I motivate and train the next generation to safeguard and build upon my legacy? “
It’s an ancient question that the most successful people have grappled with for millennia — from the earliest Stone Age farmers trying to make sure their land stayed in the family to the founder of a 21st century multibillion-dollar tech disruptor. No one wants their life’s work to die with them. I don’t mean simply passing their wealth along the family tree, but rather ensuring that each generation strengthens this living monument to the family’s triumphs.
This is an easier task for the farmer passing along hard real estate, but this simple goal still alludes the majority of the most forward-thinking high-net-worth individuals, despite their ready access to the best lawyers and professional estate planners in the world.
You’ve probably heard of the so-called “three-generation rule.” The exact numbers vary by the survey, but generally speaking, 90% of a family’s fortune is spent, lost, sold off or otherwise eaten away before the founder’s grandchildren are ready to pass the estate along. And these studies are based upon the results of the wealthiest high-net-worth families, those who have prepared ahead of time to reduce inheritance taxes and implement a well-honed estate transition plan.
So short of converting all your assets into real estate, what’s the way around this quagmire? Of course, it all begins with grooming the next generation well before they’re ready to take responsibility for the family fortune. But how? The devil is sure frolicking in the details. Far too often, it’s not what we forget to teach, but how we train the next generation to manage their wealth that’s causing the problem in the first place. Take for example the two most common approaches wealth creators use when grooming their children to become savvy stewards of the family legacy.
A classic strategy from time immemorial has been to bring heirs into the family business from a young age, often placing them in executive capacity early in their careers and coaching them from the first day to take over the CEO reins. While sometimes successful, this approach naturally increases the risk of “entitlement syndrome,” since the heir did not have to climb the ranks and earn their position the hard way. Worse, placing an unqualified or uninterested family member at the helm can often lead to rotting away the company’s culture and efficiency from the inside out. Even when it works, this success doesn’t last long. Remember Alexander the Great? His father conquered Macedonia, and Alexander leveraged that success to conquer the known world, yet his heirs lost everything by fighting amongst themselves. And that’s why you’re reading this in English instead of Greek: poor estate planning.
With that in mind, some older wealth shepherds instead encourage, if not outright demand, that the next generation must “make it on their own first” before they can be responsible for the family’s wealth. While this is usually a far more effective strategy to build character and business acumen, there’s always the risk of a Catch-22 situation developing. After all, if an heir is so successful at pursuing their passions, why would they give up their hard-won dreams to follow someone else’s wealth management plan? And if they failed to succeed at something they loved, even with the advantages of a top-tier education, family connections and likely some startup capital, are they really qualified to manage the family’s complete assets?
Now, before you give up and just bequeath all your wealth to charity, there are several tried-and-true methods for educating and mentoring the next generation. Naturally, none of these are quick fixes nor ironclad guarantees, but these are the best practices of those rare families that stay wealthy for many generations after the founder has moved on.
One of the greatest mistakes family leaders make is trying to force the next generation to assume responsibilities they’re either unable or unwilling to perform. Just like when promoting any non-family employee, the job must match the person’s skills, interests and ambitions, or else you’re setting them and the company up for failure.
Keep everyone in the loop.
Just because an heir doesn’t have any interest in taking the financial stewardship lead now or has an interest in a real estate acquisition strategy doesn’t mean things might change in the future. So it’s critical to create and maintain a constant next-generation development program. This is usually overseen by outside experts and non-family executives and can encompass a vast variety of business ownership skills and leadership competencies.
Diversify your portfolio with more real estate.
Stocks, options, bonds, cash … none of these abstract assets generates the same emotional connection and unifies a family across generations like solid real estate. Whether a private residence or a commercial investment, physical property in the family name is a source of pride and a living legacy that every generation can respect and value more than balances in a bank account. There’s a reason that real estate has been the No. 1 tool throughout human history for not just accumulating, but safeguarding and transferring wealth across generations.
There are many other tips and tricks to help the next generation avoid the pratfalls that have bedeviled so many of their ancestors, but they’re all based on the common theme running throughout these previous examples: communication.
The wealthiest multigenerational families always keep the lines of communication flowing, in good times or bad. Regular and in-depth family meetings, where the older generation actively listens to the needs and desires of the younger one before mentoring them, and both groups share everything without hesitation, are the only guaranteed way to keep your family’s estate plan healthy and proactive, instead of vulnerable and reactive.
That’s one thing that hasn’t changed since the Stone Age and won’t change even in the Space Age.