How a family office can help you build wealth

At your next family gathering, we have what some may consider a controversial suggestion for a topic of discussion, in which the entire family can participate: have a conversation about the family's own wealth management plan.

It's an uncomfortable topic but let's look at the facts: in today's economic environment, 70 percent of wealthy families will lose their wealth by the second generation. And by the time the third generation comes along, 90 percent of that money will be gone, according to the Williams Group wealth consultancy firm.

What's causing the loss of wealth?

According to a survey by the U.S. Trust, most high-net-worth individuals aren't preparing the next generation of family members to manage significant wealth. They either believe it's rude to talk about money (and therefore remain tight-lipped about the family wealth) or they worry that, if their kids really knew what was waiting for them in the will, they wouldn't take financial decisions seriously.

In some cases, family leaders are not investing the resources or time to train individual family members to manage the family business and assets effectively.

Some respondents were even concerned that the kids might leak the details of the family' personal finances if the information was shared with them.

All of these factors contribute to one harsh reality: Today's wealthy kids have limited expertise in how to handle money. With the right approach, it is possible for all generations of your kids and grandkids to live a comfortable life, but it will require clear communication.

Move past the discomfort

Most of us have been taught not to discuss money. Financial literacy is an important lesson that everyone must learn — and the earlier the better. If you need help creating a lesson plan, look for free online resources — there are many to choose from or reach out to your MNP advisor about a family office.

Consider updating your will

Transparency is hard but it is worth it. To avoid issues, conflicts, rumours and speculation, lay it all out in the open — and break down the reasoning behind your will and estate structure so the entire group understands what you want to do with the family's assets. Tying your decisions to your family's values can increase understanding and help guide future decisions.

Create a financial roadmap for family members

Inheriting a large sum of money or family assets overnight can be daunting, which is why it can be helpful to leave your family with a roadmap. This plan should outline your family and legacy's mission statement, your expectations and wishes (in terms of spending, saving and donating) and lessons you learned about building wealth.

Like many parent-child conversations, the “money talk” comes with its fair share of discomfort — at first. The more you talk about family matters, the more normalized it becomes.