Prosperity and Posterity
August 31, 2005By Ray Padrón, CPA, CFP®, CIMA®, PFS
As parents of four children who are in various stages of “leaving the nest,” my wife Sharon and I have learned a few lessons over the years. We have been blessed throughout our child rearing years and are having more fun today with our children than we could have imagined. We even picked up a wonderful son-in-law along the way. As with most families, each of our children are unique and each learns differently. We are always challenged when our children are making an important decision. We want to make it for them but that would leave them less prepared for the future. A future that experience tells me will require a strong set of values and good decision making skills.
When it comes to learning, values, and decision making, there is one thing I have found to be true: Some things are taught, some things are caught and some things have to be learned the hard way (through experience). As parents, we like to think that we can protect our children and pray that they learn as much from our teaching and their catching as possible. However, the fact is many things will still be learned from experience. Just because children grow up and leave the home does not mean that parenting is over. As parents we will be given a host of opportunities to help guide them. The methods and the tools may require a bit more sophistication, but the fact is I will always be ahead of them in life, its opportunities and its responsibilities. I feel more strongly about that than ever before. In fact, I am more energized at the possibility of impacting them as adults by using our resources to create learning experiences that will train them for the future.
One of the final experiences we create for our families will actually happen right after we leave this world. For many families, that experience is being left more to chance than they realize. It is estimated that approximately $52 trillion will change hands to the next generation between 1998 and 2052. Here’s the bad news: Approximately 70% of estates fail following their transition into the hands of heirs. That’s right, heirs involuntarily lose control of the transferred assets by poor investments, dissipation through family arguments and legal expenses, or just plain inattention and lack of preparation. What is not the problem is poor estate planning. What I mean is that most people’s estate documents work just fine. The reason for much of the failure with estate transitions lies within the family itself. Approximately 60% of failed estates fail due to a lack of trust or a communication breakdown within the family. Another 25% fail due to a lack of training to ensure the family is prepared to manage the wealth they have inherited. “Manage” means more than just professional money management, but also the discipline to spend it wisely and not all in a short period of time.
There are a lot of tools that we have at our disposal to make sure the next generation of our family is prepared to handle the wealth we have accumulated. The best ones are the same ones we used when they were growing up: our time, our attention and our money. The point is that it takes time, thought and a strategy in order to ensure that each of your family members is prepared. In this newsletter we highlight Philanthropy Heirs and Values, a book that explains the reasons for the statistics above and more importantly lays out practical steps to prepare your children and your grandchildren. It also highlights one of the most effective tools we can use in our overall wealth transfer strategy, our own generosity. By using our accumulated wealth and creating experiences for our children to be involved in family philanthropy at progressive levels of participation (depending on their age), our posterity will learn the necessary values, mission and accountability. Through that process, the family builds trust, communication skills and competency that will guide it for generations to come.
