Strategies to effectively manage the transition of wealth across generations

Research has shown that three-quarters of the time, wealth substantially decreases when passed through generations. Moreover, almost all assets are exhausted by the third generation. Lack of effective planning is often the root cause of this issue, which means it is crucial to construct a strategic framework to minimise the risk of premature asset loss. For many individuals, this matter is often neglected until it is too late, leaving the transition of wealth unmanaged.


Steps to ensure wealth is managed effectively

The perception that these plans should only be dealt with during the latter stages of life is incorrect. It is never too early to devise a framework and doing so will grant the next generation sufficient time to practice these values. We suggest considering the following steps to ensure wealth is managed effectively across generations: 


1. Have a plan

Planning is the most crucial factor in the transition of wealth. Implementing a plan as early as possible is imperative, since leaving it too late will often result in the framework not being enforced. For almost a third of families, poor health and old age is often the cue to begin formulating the plan. At this stage, the probability of meaningful action is extensively reduced. When creating a long-term plan, it is crucial to outline the reason why specific assets were granted to certain individuals, as well as how these assets were intended to be consumed. A mission statement is often an effective method utilised by families to convey a broad instruction regarding the funds. It should not be specific to the monetary properties of the assets, however, should consider the preservation of values and legacy.


2. Communication

Although finances are often a neglected area of discussion, it is vital that these conversations are conducted, to educate family members about the transfer of wealth. It is common for families to exert the majority of their focus on generating wealth, yet completely disregard the method in which it is maintained through generations. By communicating the importance of money management, generations to come will utilise these values to sustain the fortune over an extended period.


3. Bring in a third party

Although communicating with family is critical to developing a plan, it may be worthwhile to assemble a team of specialised managers to gain expert advice on managing wealth. These third parties have different roles in ensuring assets are utilised effectively, by assisting clients in developing financial literacy, providing advice for the management of assets and facilitating the formulation of a fair and effective plan. 


Various strategies can be utilised to ensure the transition of wealth between generations is a successful process. Consider implementing a framework as early as possible to make sure assets are not prematurely lost between generations. By seeking professional advice, you will ensure the preservation of assets through facilitating the development of a long-term plan and providing invaluable advice relating to the management of assets. Reach out to the team at Lockwood Partners for more information.