Father and daughter go over their financial on boarding process that helps their family maintain multigenerational wealth.

June 26, 2019

What's the Key to a Multi-Generational Family Legacy?

Wealth rarely endures long enough to create a legacy that lasts for multiple generations.

The underlying cause?

A general lack of preparedness.

Only 35 percent of inheritors said they were prepared by their benefactors before receiving wealth, according to RBC Wealth Management's Wealth Transfer Report.

Families making an effort to prevent this from happening to their wealth are turning to more formalized processes so they can feel more confident that the next generation will sustain not only their wealth but also their family's legacy. One of the approaches some families are choosing: financial onboarding.

What is Financial Onboarding and What's Included in It?

Four out of five families with wealth sustaining multiple generations found that structured and documented financial education, rather than informal family conversations, were more effective in preparing the next generation to inherit, according to the same report.

The financial onboarding process does exactly that.

“The onboarding process creates documents that inform the individual about the family's history and gives them an overview of what the family has done with the money and what they'd like to do in the future," said Samantha Virdin-Smetana, a trust officer at City National Bank.

Through formal documentation, families share the history, financial values, wealth advisors, economic acumen and structure of the family.

As Virdin-Smetana noted, while introductory information is crucial for children who are first learning about their wealth and gaining responsibility to manage it, it's just as valuable for new spouses who marry into the family and aren't familiar with the family wealth dynamics and may not even come from a similar economic background.

Even though the details of your financial onboarding process and documentation will need to be tailored for your family, there are some general principles our experts encourage you to explore.

Determine the Most Important Message

In order to ensure your onboarding documents are thorough and will fulfill their intent, it's important to outline what are your family's goals for managing wealth and preserving your legacy.

“Families with long-standing wealth will have procedures in place to manage money, and you'll want to educate any newcomers or children coming of age about those processes," said Paul DeLauro, manager of wealth planning for City National Bank.

DeLauro said the most important question to ask yourself when creating these types of document is, “What are we trying to convey as a family?"

Once you identify what wealth means for your family, you can demonstrate it through the way you manage your wealth and in what you share via the onboarding process.

For example, many families wish to preserve the legacy of the founding family member who initially created the estate. In this case, you'll want to teach younger and new family members not just about finances but also about your historical values and traditions, as well as how the first generation earned their wealth.

Other families may have more emphasis on a charitable foundation they've formed or on the family business. Virdin-Smetana added that these families tend to detail how involved they expect family members to become in those aspects of the family legacy.

“All members of the family will need to understand how they fit into the picture, if they're expected to provide directorship or some type of support for the business or foundation," she said.

If you're the first generation of wealth, it may be easier to think through the onboarding idea with your spouse and children.

For large, multi-generational families, it may be easier to host a meeting or retreat to discuss these ideas and develop a joint message to get everyone involved in and excited about the family legacy.

Integrate Several Layers of Financial Literacy

Financial literacy is a crucial aspect of the onboarding conversation for children and in-laws alike.

Sixty-six percent of those who began receiving financial education before 18 rated themselves as more confident in managing their inheritance, according to the RBC survey.

“For younger generations who haven't necessarily been involved in the day-to-day finances, they'll need to learn what money is available to them and how to live within those means," emphasized Virdin-Smetana.

This is true not only for children, she noted, but also in-laws. Those who marry into a family may come from different backgrounds and have different understandings about how to grow and maintain wealth.

“New family members may need to be taught best practices for managing wealth because they may not have been exposed to them previously," said DeLauro. “They also need to learn about family-specific things, like trusts that have already been established and how to maintain and utilize them."

For many families, it can get even more complex.

Advisors noted that it's common for families, when educating the next generation about wealth, to overlook crucial items such as debt, real estate, investments, companies and family offices. However, these assets and liabilities tend to require more onboarding to educate someone on how to properly manage them.

Every family has a different approach to financial literacy. One method aimed at helping overcome a gap in financial acumen is requiring engaged couples to get financial counseling. Others introduce their children to their financial advisors as soon as they are old enough to open a bank account.

Regardless of how you decide to structure it, experts recommend a formalized educational process for both new and existing family members so they have a comprehensive understanding of how to manage wealth and preserve the family legacy.

A professional can determine the best approach for your family and also identify on which areas specific family members may need further education.

Include Professional Guidance

An objective third party, whether that be a financial advisor, estate attorney or a team of professionals, can be a crucial component of the onboarding process for more reasons than one.

“A trusted third party who's aware of the big picture can help new members acclimatize to the situation and educate them in an approachable, objective way," said Virdin-Smetana. “The newcomer can turn to them as a confidant and ask questions and raise concerns that they might not feel comfortable doing with a family member."

This professional can also play a helpful role in mitigating fraught family dynamics.

When individuals feel like they've been slighted or there's a difficult family member to deal with, the third party can help keep a cohesive core family. They act as a sounding board for all generations and then play mediator.

Safeguard the Assets You've Accumulated

Whether or not you rely on documents, annual meetings, financial experts, or all three to educate children and new members about your family's legacy, consider how you can protect your assets, no matter how your family grows and evolves throughout the decades.

“It's imperative to decide as a family what kind of control you want the next generation or in-laws to have over the wealth," said Virdin-Smetana.

What type of protections you'll need will vary depending on your family's portfolio, but there are several methods you can explore with your wealth manager to determine what will be appropriate for your situation.

“It's important to protect legacy and there are many ways to do so," she said, listing a few examples. “There's prenups, postnups and trust agreements that can be put into place that can allow for benefits, while also protecting the assets."

Does Your Family Need an Onboarding Process?

For any family that's built wealth and wants to ensure that it extends beyond the second or third generation, a formalized onboarding process can improve the financial literacy and preparedness of the next generation and help extend their valuable family legacy.

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This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.

City National, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies presented, taking into account your own particular circumstances.

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