Summer Family Retreats: Start Having Those Difficult Conversations About the Future

Key Takeaways   

• Why 70% of wealthy families lose their wealth by the second generation and 90% by the third generation.  

• Summer family retreats offer a low-stress setting for open conversations about estate planning and wealth transfer. 

• Involving younger generations in financial decisions early builds the knowledge and responsibility needed to preserve wealth. 

Now’s the time of year when many extended families get together for summer retreats at the beach house, lake cottage, or European vacation destination. Longer days and warmer weather create the perfect environment for relaxing and reconnecting. Retreats are also ideal for renewing bonds, repairing hurt feelings, and enabling children to get to know their grandparents better in a more relaxed setting than the Thanksgiving dinner table or a family wedding or funeral. 

However, there’s another important benefit of multigenerational family retreats that doesn’t get discussed much. They make it easier to have open conversations about estate planning, shared goals, values, family legacy, and property without the high-stress distractions often present during end-of-year holidays.  

I bring this up because an estimated $124 trillion is expected to transfer across generations over the next two decades. Meanwhile, a 25-year study by the Williams Group found that 70% of affluent families lose their wealth by the second generation, and 90% by the third.

I know that sounds shocking, but family wealth erosion is more common than you might think. It usually comes down to one of three reasons (all preventable with a little planning):  

1. Communication breakdowns. 

2. Unprepared heirs. 

3. Weak estate, tax, and liquidity structures. 

 Let’s take those reasons one at a time and how to address them: 

1. Communication Breakdowns 

Challenge: Many parents we work with are uncomfortable talking to their kids about money and estate issues -- even if the kids are adults. Some worry children will lose their motivation to work hard and become self-sufficient if they assume millions in assets are coming their way. And when children grow up without an understanding of their family's wealth or the responsibilities that come with it, they can be completely unprepared when they inherit a significant windfall. This can lead to poor decisions about spending it, saving it, and giving it away. Just like many lottery winners who wind up broke a few years later.  

Solution: That’s one reason why at Novi, we strongly recommend setting up family trusts. And the key to making a family trust effective for all generations is clear and consistent communication about how the trust works and what its intentions are.  

2. Unprepared Heirs 

Challenge: Williams Group data found that trust and communication breakdowns and unprepared heirs represent 85% of the reasons for failed wealth transitions. Further, Citizens Bank Research shows more than half of millennials (54%) and Gen Zers (51%) said they've gotten poor advice after a financial windfall compared to just 20% of Gen Xers and 10% of baby boomers. 

Solution: The aforementioned Williams Group study found families that successfully preserved their wealth across generations did so by proactively involving NextGen in family financial decisions. It could be reviewing investments together, discussing charitable goals, or explaining how the trust and estate plans are structured. At Novi, we advise clients not to overwhelm NextGen. Instead, use the discussion to build familiarity with the process over time so they understand that when their parents pass, they are not getting a huge financial windfall all at once. It’s crucial to explain early on how the trust works and what they can expect from it over many years.  

Another part of heir preparation is passing along family values to the children, giving them a financial education, a sense of responsibility and a shared family purpose. One of the things we encourage wealthy families to do is gift their kids money on a regular basis. Each parent can gift each child $19,000 a year tax-free ($38,000 per married couple). Gifting is a smart way to reduce the size of your estate, and it’s a good test to see how responsibly your child handles relatively large sums of money and what kind of financial education they need.   If kids take the money and buy a fancy car or spend it all on trips and evenings out with friends, it lets the parents know there need to be some guardrails in place to prevent the child from blowing their full inheritance in the future. However, if the child puts the money in a savings account or invests it wisely, that can open up the door to getting the child more involved in the family’s estate plan and how the will should be managed and sustained over time. 

3. Weak Estate, Tax, and Liquidity Structures  

Challenge: Sometimes people come to us after they’ve amassed significant wealth. They sometimes have no trust designations for their children. As a result, their kids will just end up getting an enormous amount outright, and they may not be prepared to handle it.

Solution: At Novi, we create estate plans that can include trust and beneficiary designations as well as ownership structures and tax strategies that are designed to last a lifetime. For instance, sometimes it may be better for a family to have the trust skip a generation for tax purposes. But tax laws are constantly changing, and family situations are constantly evolving. That’s why estate plans need to be updated frequently – it’s not a set-it-and-forget-it exercise.   At Novi, we get to know the families we work with very well. We know their values, their financial situation, their tax situation, and what their wishes are. We do most of the planning and strategy to protect and grow our clients’ estates. Then we work with outside estate attorneys to draft the legal trust documents to make those plans official.  

If a family’s children are young and don’t have any special issues or needs, we always recommend putting a testamentary trust in the will. That avoids the need for a living trust and works as a failsafe in case something terrible happens to both parents early on. The language in the will can create a trust that protects the parents’ assets until the kids reach a certain age. For instance, the distribution of the trust can be phased in over time so that the kids receive one-third at age 30, one-third at age 35, and the remaining third at age 40. And during that time, the kids receive income from the trust, and they can take out principal as needed to support health, education, a down payment on a house, etc.  

When it comes to designating a trustee, we usually recommend having a corporate trustee instead of a close friend or family member to eliminate disputes and feelings of resentment. See our blog for more about corporate trustees. 

Conclusion: With a little bit of planning and foresight, you can put your family in the 10% that maintains its wealth past three generations. If you or someone close to you would like to explore estate planning options, reach out any time. I’m happy to discuss. 

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DAN SATZ MS, CFP® is a Partner at Novi Wealth