An Insider's View

By Joline Godfrey

Effectively preparing heirs has taken on a new meaning in today's sociopolitical environment

The onset of COVID-19, the movement for racial justice and warp-speed changes in biotechnology – these are a few of today’s realities transforming family aspirations to prepare the next generation of inheritors to anxieties about how to do just that.

While this task may be anxiety-inducing for many families, it is as critical as ever for those seeking to successfully transfer wealth. Effectively preparing heirs has taken on a new meaning in today’s world, as showcased by the new sociopolitical realities younger generations are facing. In that context, who better to provide insight into the support and resources inheritors need than the inheritors themselves? Hawthorn, PNC Family Wealth, through its Institute for Family Success offering, has gathered this feedback and identified five effective strategies to help your NextGens live adaptive, sustainable lives.

1. Help them prepare themselves. Many inheritors have enjoyed extraordinary opportunities. They’ve seen more, traveled more and experienced more than many of their elders. Simultaneously, many of them have been surrounded by family office staff and experts — all of whom, along with well-intended parents, have insulated them from many of life’s day-to-day tasks.

For many inheritors, managing a budget means charging goods and services to a credit card someone else pays off. This has left many NextGens with diminished budgeting skills and few opportunities to develop the competencies their parents want them to exercise. As one 16-year-old put it, “My mom keeps a spreadsheet for everything; she tells me what I spend, but I don’t actually understand it myself.”

This unintended consequence of being a loving parent is not irreparable, but changing habits to require inheritors to gain new skills takes commitment. To help beneficiaries develop these necessary competencies, give them increased responsibilities, hold them accountable and resist the temptation to make them happy instead of masterful.

2. Listen and co-create. Readying inheritors for the future takes active involvement from the entire family. This is especially true for families whose rising generation may be quick to dismiss the experiences of their elders with the slang phrase “OK Boomer.” Listening to these inheritors can be the first line of defense; they want to be equal contributors to the familial conversation. 

Take, for example, a family whose son had the opportunity to tour the factory of an up-and-coming electric car company. Upon returning home from the tour, he encouraged his parents to invest in the company. The family ignored their son and instead invested in a different electric car company, which ultimately underperformed the competitor. This example underscores the need for future generations not only to share their insights, but also to be acknowledged for their contributions. Guided by family members who join with them as mentors, inheritors are more likely to actively engage in financial matters and to take ownership of outcomes.

3. Enable cousin collaboration. Before COVID-19, families with multiple branches might try pulling cousins together once or twice a year for training aimed at “preparing inheritors.” In many families this cut into precious summer or holiday time when cousins would have preferred pursuing their own adventures over discussing the family’s financial goals.

The recent advent of virtual family meetings gives cousins the opportunity to climb mountains and connect for a few hours of cousinly communication, allowing for the pursuit of independence while staying closely connected.

This new flexibility offers families and young inheritors a vehicle for acquiring skills and knowledge essential to the roles they play as beneficiaries and stewards of generational wealth. We’ve all had a global lesson on telecommunication, and young people started ahead of the class while their parents and grandparents played catch-up. Digital natives, at ease with technology platforms that span their many devices, are applying their command of technology to the work of connecting with cousins. Use of digital applications makes it easy to brainstorm, record ideas and conversations, and schedule across time zones, to name a few advantages. While there are multiple tools now available to facilitate connection, a common trait emerges – innovation is key to facilitating connections for the modern family.

This is not to say the real-time, face-to-face experience of coming together to practice decision making and leadership in the context of family visions and goals is not valuable; it most certainly is. Encouraging cousins to manage the “when” and “where” of their gatherings and trusting them to apply their technologies as they deem effective is a post-pandemic form of mentoring. It sends the message that you recognize they are competent to make their own plans, and you expect they will.

4. Provide practice and resources. Giving kids money is not the same as empowering them to learn how to manage it. Experiential learning for inheritors is essential, and the educational opportunity it can provide is unparalleled. Family leaders can facilitate this process by providing opportunities for inheritors to create, start and build new ventures, invest and engage in due diligence. Inclusion in a philanthropic meetings or participation in the exploration of investment options gives inheritors the chance to participate in real-world exercise.

Practice cannot make perfect unless inheritors feel safe to ask questions while they learn. As one young beneficiary shared, “When I was 16, my family’s estate attorney described my trust fund to me. The next day, it was expected that I understood that I had special obligations. I didn’t understand what the attorney was talking about to the point where I wasn’t even sure what to ask.”

5. Start young or start now. Understanding grows over time. A 16-year-old who hadn’t spent their childhood learning to read music and practicing their instrument would not be expected to perform at Carnegie Hall. A novice of any craft would not effectively perform in competition without coaching and adequate preparation. For young beneficiaries, the path is similar. Failing to prepare kids when they’re young but expecting them to be masterful in adulthood is unrealistic and unfair. The most effective preparation for inheritors starts early, with the development of values and skills they can build on over time. Like learning a new language, the task is harder as we age, but it can be done with great focus and practice. Lifelong learning is a responsibility of the whole family, not just young inheritors. Learn with, and alongside, your beneficiaries and enjoy the process together.

6. Offer them experience, not sermons. Too often, families rely on “experts” to explain economics, beneficiary responsibilities and money management skills to inheritors. Reliance on such sessions is a risk because they may not resonate with inheritors who have no experience with the concepts. Instead, consider personalizing the learning. Ask the 16-year-old to buy their first car and manage its maintenance. Assign the 12-year-old the responsibility of managing the family vacation budget. Tell your college student you’ll help fund a new theater for the college if they’ll sit on the finance committee and learn how to manage the finances of the building project. Get inventive about what it means to help young inheritors get acquainted with what they are inheriting.

And if nothing seems to work? Sometimes good intentions and noble efforts fail. New inheritors may be slow to grasp the scope of the opportunity and the responsibility that is their lot.

This may result from:

• Lack of clarity on the part of grantors who have not been explicit about their expectations, hoping beneficiaries will somehow intuit their role. The families who communicate intention early and often rarely have this issue, while families starting late will need a plan to facilitate clarifying expectations.

• Lack of transparency is usually born out of concern that inheritors will be “demotivated.” In this instance, a lack of information is detrimental. Kids who suspect or hope they will be beneficiaries may overestimate the size of a trust fund and grow up with false security. On the other hand, kids oblivious of the scale of their inheritance may be underprepared for the responsibilities of wealth. Knowledge can be an illuminating force when shared in the context of values and bound with clear expectations. If secrecy has been the core plan for beneficiary development, a new plan may be in order!

• Lack of readiness on behalf of future inheritors. Kids who don’t worry about paying their own bills, who don’t make their own bed and who are able to delegate most of life’s cares to “support” folk may not be up to the responsibilities of being a successful inheritor. Thinking critically and prudently managing resources are skills honed over time. Good judgment evolves from experience —from making mistakes and learning from them. Young inheritors who have not been challenged to solve their own problems, make decisions and live with consequences may simply not be ready for the weight of inheritance. They can get ready, but this doesn’t happen accidentally — it is carefully and intentionally planned and co-created with the inheritors, in the context of the grantor’s values and expectations.

Change is an inevitable part of our lives. Many of the traditions and practices older generations grew up with are quickly eclipsed by those of the next generations. However, the characteristics of successful inheritors remain the same, even if the world in which they grew up is not. Finding new ways to adapt to their changing world is called innovation and is as relevant for families as for businesses. Listening and learning together is the new family practice.    FB

Joline Godfrey is the managing director of Family Learning and Programming for the Hawthorn Institute for Family Success at Hawthorn, PNC Family Wealth (www:pnc.com/hawthorn).

CALLOUTS:

To help beneficiaries develop necessary competencies, give them increased responsibilities, hold them accountable and resist the temptation to make them happy instead of masterful.

Young inheritors who have not been challenged to solve their own problems, make decisions and live with consequences may simply not be ready for the weight of inheritance.

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