As a financial services professional, you already know that the high net worth market is exploding. According to the 2006 Merrill/Cap Gemini World Wealth Report, households with a net worth of $30 million or more are expected to be the fastest growing segment of wealth at 6-9% per year in the coming years. Yet, there are fewer professionals in our industry today than ever before.
As a result, there is a tremendous opportunity to reach out to clients to ensure their assets are successfully passed on to children and grandchildren. This requires more than just looking at investment rates of return and generation-skipping issues and planning for the transition of estate and life insurance documents. To create a lasting legacy, you should be planning for a number of generations.
The first, and perhaps most important, question to ask any client is: What are you doing on a proactive basis to increase the likelihood that your children and grandchildren will be outstanding stewards of your wealth?
We have all seen examples of what can be called the "Paris Hilton Syndrome"–young socialites from wealthy families who burn through their families' wealth–in the tabloids and on television. In fact, our culture celebrates and rewards such behavior. Just look at the ad campaign for a 2003 TV documentary on Hilton, "Paris and (sister) Nicky…globetrot like CEOs, rage like rock stars and ooze cash like ATMs…"
This demonstrates that the apple can, indeed, fall far from the tree. It's doubtful that Paris' great-grandfather, Conrad Hilton, was hoping his heirs would be known for their lack of financial discretion when he built the Hilton hotel empire decades before. I would wager that it's not the legacy he intended.
Ultimately, creating a legacy is more than passing on dollars and cents; it's about passing on dollars and sense. It's about passing one generation's knowledge, wisdom, experience and values onto the next…and the next. It's also about the difference between a transfer and a gift.
A transfer is a gift without context to it and brings with it the perils of entitlement. A gift, on the other hand, is a transfer that has meaning, vision and values attached to it. It can be a source of empowerment. Rather than just money, it is a potent combination of money, knowledge, wisdom and experience. As a result of these intangibles, the tangible (i.e. financial assets) are more likely to be around for generations to come.
Legacy planning also encourages and enables seniors to manufacture experiences for their children. As any good parent knows, providing children with the opportunity to fail is one of the greatest gifts that can be given. Failure gives children opportunity to learn for themselves about what works and what doesn't.
A fictional family
To see how effective this approach can be, consider the fictional Smith family. This highly affluent clan consists of not only Mr. and Mrs. Smith, but also three children. The household has a net worth of $150 million.
