Preventing the Three-Generation Rule

According to a Chinese proverb, “Wealthnever survives three generations.” Because of this three-generation rule, nine out of ten family fortuneswill be gone by the time baby boomers receive their inheritance.  This trend is preventable, but it involveshaving honest conversations with the beneficiaries and a willingness to givethem some money now to avoid having it all lost later.

The second and third generation oftendoesn’t experience the work and sacrifice it takes to earn the familyfortune.  Before a generation inherits afortune, “wealth builders” should instill financial responsibility at an earlyage by giving their beneficiaries a substantial sum of money.  For those that blow through the money, arestricted-access trust may be in their future.

If a family business is involved, wealthbuilders should also be willing to relinquish some control to beneficiaries sothey will be more prepared when it’s time to take over.  And because the first $5 million ofinheritance from each parent is exempt, parents should consider giving childrenmoney before they die to avoid the estate tax.

SeeJohn Hartog, Jim Kohles & Haitham “Hutch” Ashoo, Will Your Beneficiaries Beat the Odds?,Idaho Senior Independent, June 20, 2013.