Entitlement "De-Programs": Ensuring Your Children Inherit Your Wisdom, not Just Your Assets

By: Carol Clark | 5,243 Reads | 45 Shares

Featured in: Multi-Unit Franchisee Magazine: Issue 2, 2011

%3Cp%3EA+financial+legacy+can+provide+an+incomparable+%22leg+up%22+to+offspring--if+they+are+adequately+prepared.+However%2C+inelegant+handling+of+the+training+stage+can+create+generations+of+enmity%2C+or+breed+unmotivated+individuals+with+an+entitlement+attitude.+A+family+business+%28especially+if+some+offspring+participate+in+day-to-day+operations+while+others+do+not%29+presents+even+more+complexity%2C+particularly+in+the+area+of+%22fairness.%22+Following+are+a+few+things+to+think+about+as+you+grapple+with+starting+the+preparation+process.%3C%2Fp%3E%0D%0A%0D%0A%3Cp%3E+%3Cb%3EUnveil+your+own+financial+management+beliefs--the+sooner+the+better.%3C%2Fb%3E+In+the+frenzied+intersection+of+building+a+business+and+raising+a+family%2C+it+can+be+overwhelming+to+take+time+out+to+discuss+the+emotionally+laden+subject+of+%22money%22+with+your+heirs.+Entrepreneurs+are+by+their+very+nature+used+to+being+in+complete+control+and+often+reluctant+to+discuss+details%2C+yet+it+doesn%27t+take+a+four-hour+discussion+of+the+family+balance+sheet+for+you+to+open+the+dialogue.+Start+small%2C+by+teaching+key+values+such+as+%22Spend+less+than+you+earn%22+and+the+importance+of+giving+back+to+the+community.+Explain+how+you+first+pay+yourself+by+funding+your+retirement+account+off+the+top.+Explain+how+you+use+automatic+payments+to+fund+charitable+donations.+Let+them+know+that+what+comes+in+as+%22gross+income%22+for+the+business+isn%27t+play+money%2C+but+is+invested+in+plant%2C+equipment%2C+advertising%2C+etc.%2C+and+pays+taxes+%28which+helps+put+people+to+work%2C+builds+infrastructure%2C+and+fuels+the+economy%29.%3C%2Fp%3E%0D%0A%0D%0A+%3Cp%3E%3Cb%3EDelay+talking+about+your+financial+%3Ci%3Ebalances.%3C%2Fi%3E%3C%2Fb%3E+While+it+is+best+to+start+demonstrating+your+money+philosophy+early%2C+most+advisors+agree+that+you+should+be+very+careful+regarding+how+soon+you+reveal+%22real+dollars.%22+Children+understand+very+early+where+they+are+in+the+social+strata+relative+to+their+peers.+To+the+extent+that+privilege+discourages+children+from+finding+their+own+purpose+and+reason+for+being%2C+it+can+be+an+overwhelming+burden+and+a+disservice+that+lasts+a+lifetime.%3C%2Fp%3E%0D%0A%0D%0A%09%3Cp%3EAccording+to+many+advisors%2C+any+significant+amounts+gifted+to+a+child+before+age+25+can+seriously+impede+that+child%27s+personal+search+for+a+meaningful+livelihood.+Some+advisors+recommend+waiting+until+children+are+in+their+40s+or+50s+before+giving+them+direct+access+to+significant+unearned+wealth.+Part+of+the+answer+lies+in+what+children+are+taught+about+the+role+that+money+plays+in+their+lives+during+their+formative+years.+Children+must+learn+the+responsibilities+attendant+to+affluence%2C+not+just+be+left+to+revel+in+the+privileges.%3C%2Fp%3E%0D%0A%0D%0A+%3Cp%3E%3Cb%3EEncourage+your+children+to+find+their+own+passion+and+purpose.%3C%2Fb%3E+In+her+book+%3Ci%3EChildren+of+Paradise%2C%3C%2Fi%3E+Lee+Hausner+repeatedly+stresses+the+importance+of+giving+children+the+ability+to+develop+wide-ranging+competencies.+For+children+growing+up+in+affluent+households%2C+this+can+be+especially+difficult.+As+Hausner+puts+it%2C+%22Many+wealthy+parents+lead+lives+that+place+them+in+strong+supervisorial+roles...+Eliminating%2C+or+significantly+diminishing%2C+this+%27take+charge%27+orientation+when+parenting+is+not+easy.+But+parents+who+assume+the+responsibility+for+making+all+the+important+decisions+without+input+from+their+children+are+actively+encouraging+dependency+rather+than+helping+them+develop+competency.%22%3C%2Fp%3E%0D%0A%0D%0A+%3Cp%3E%3Cb%3EThe+tough+love+school+of+intergenerational+wealth+transfer.%3C%2Fb%3E+Parents+need+to+be+aware+of+the+emotional+messages+sent+by+funding+their+children.+If+a+parent+steps+in+with+financial+aid+every+time+the+child%27s+credit+card+is+overextended+or+cell+phone+bill+is+too+large%2C+the+messages+the+child+receives+are+that+%22Struggle+is+bad%2C%22+or+worse%2C+%22You+are+not+responsible+enough+to+get+yourself+out+of+jams.%22+Come+to+a+child%27s+aid+too+often%2C+and+an+entitlement+mentality+may+become+firmly+established.+However%2C+not+all+parental+expenditures+are+bad.+For+example%2C+paying+for+post-secondary+education+is+a+legitimate+way+to+help+children+prepare+for+independent+and+productive+careers+of+their+own.+But+each+time+you+pull+out+the+checkbook%2C+think+carefully+about+the+message+you+are+sending+your+child.+Your+children+can+inherit+your+assets%2C+but+not+your+wisdom.+Personal+wisdom+is+attained+by+overcoming+obstacles+and+struggling+to+reach+goals.+%3C%2Fp%3E%0D%0A%0D%0A%3Cp%3E+%3Cb%3EWhat+does+%22fair%22+look+like%3F%3C%2Fb%3E+Some+affluent+couples+are+intent+that+equal+dollar+amounts+flow+to+each+child+and+their+family.+Indeed%2C+many+professionals+argue+that+this+approach+ensures+future+family+harmony.+Alternately%2C+some+grandparents+want+each+child+to+be+treated+equally+and+each+grandchild+to+be+treated+equally--which+means+that+the+family+of+a+child+with+a+larger+brood+receives+more+of+the+parent%27s+wealth+then+the+family+of+a+sibling+with+fewer+or+no+children.+Either+approach+is+valid%3B+how+well+either+works+depends+on+the+family%27s+unique+dynamics.+The+more+parents+and+grandparents+communicate+to+the+children+and+grandchildren+about+what+their+perspectives+are+and+why%2C+the+fewer+intra-family+resentments+there+will+be.%3C%2Fp%3E%0D%0A%0D%0A%09%3Cp%3EThough+the+issues+surrounding+wealth+transfer+planning+are+emotionally+charged%2C+they+are+not+insurmountable+obstacles.+With+thought+and+careful+planning%2C+affluent+parents+have+an+incredible+opportunity+to+pass+a+lasting+legacy--both+financial+and+emotional--to+the+generations+in+their+wake.%3C%2Fp%3E%0D%0A%0D%0A%3Cp%3E%3Ci%3E%3Cb%3ECarol+M.+Clark%3C%2Fb%3E%2C+CFA%2C+is+a+partner+and+investment+principal+of+Lowry+Hill%2C+a+private+asset+management+firm+that+provides+proprietary+investment+management+and+financial+services+to+families%2C+individuals%2C+and+foundations+with+wealth+greater+than+%2410+million.+The+firm+manages+approximately+%246+billion+in+assets+for+nearly+300+families+and+more+than+60+foundations+from+offices+in+Chicago%2C+Minneapolis%2C+Naples%2C+and+Scottsdale.+She+welcomes+questions+and+comments+at+cclark%40lowryhill.com.%3C%2Fi%3E%3C%2Fp%3E

Published: July 14th, 2011