Let=s Look At the Big Picture.   The transfer of wealth is a complicated process.  We attorneys are concerned with drafting estate planning documents to carry out the wishes of a senior generation about who gets what and how much, and when they get it. Do the succeeding generations receive wealth outright, or is the wealth protected by a trust?  If a trust is used, how long does the trust last, and how and under what conditions are monies distributed?

Accountants give counsel on how to account for wealth, in a financial context and in the context of paying various kinds of taxes.  Asset managers strive to maximize investment returns according to the risk tolerance of beneficiaries or directions set forth in a trust or will.

Here Today and Gone Tomorrow.  The old adages about inherited wealth go something like this:   Wealth is accumulated by the first generation, used by the second generation, and completely dissipated by the third generation.

There have been statistical studies that bear out this conventional wisdom. For a summary of this topic, I would thank Attorney CFA Ron Yolles of Bloomfield Hills, and his article in the  winter edition of the Michigan Probate and Estate Planning Journal.  This newsletter is a synopsis of that article, and reflects the author=s views and research.   Mr. Yolles cites the bestseller AThe Millionaire Next Door@ for  several insights on building and preserving wealth.  According to this study:

 $        67% of US millionaires were self employed  entrepreneurs who saved over 20%
of their annual income

 $         80% of millionaires were first generation, not inheritors

 $         Millionaires live well below their means, while inheritors did the opposite, spending more than they earned

Cash Gifts.  The authors Professors Stanley and Danko, found an inverse relationship between cash gifts to children and both the earnings and wealth that those children were able to accumulate.  This should be an important warning sign for parents. 

Hitting Close to Home.  The authors did a study of CPA=s and Attorneys who received cash gifts from  their affluent parents and found that these individuals had a significantly lower net worth and income than their peers who did not receive cash gifts.  The authors concluded that this inverse relationship between cash gifts and financial success applied to all occupational groups except professors and teachers (who supposedly saved and invested gifts and inheritances). 

Assuming that this is true, professors and teachers  deserve kudos for investing cash gifts rather than spending them to improve lifestyle. 

The authors also concluded that the ultra successful children of the affluent who become successful in business or professions became financially successful because they did not receive cash gifts, did not depend on their parents and developed sound financial habits.

Whose Values Prevail?  Admittedly, each individual can make his or her own decisions about the importance of thrift, good financial habits and levels of the financial security versus current enjoyment. 

For the most part, however, parents want their children to be self-sufficient and not dependent.  Everyone has heard disparaging comments about Atrust fund babies@ and lack of motivation for constructive activity. (Perhaps there is a little jealousy in these comments, or perhaps hard working professionals would like to be a little bit more on the receiving end of parental largess.) 

What To Do?   Wealthy clients have to transmit values to their children.  This can be done through clear communication and involving the children in consultation with professionals.  Parents need to communicate with their children, clearly express their parental values, confide in their children about their professional  advisors.  Mr. Yolles observes the conclusions of author Roy Williams in his book, For Love and Money, Aa comprehensive guide to the generational transfer of wealth@, that only about 30% of affluent families make successful wealth transitions.  Those families had three common  traits:

1) Candid communications among family members;

2) Requirements that heirs achieve independent academic and career success

3) A written plan and family mission statement.

Are These Factors Important to Your Clients? I will freely confess that it is not often that clients make inquiries about the factors that are discussed in this newsletter.  Attorneys are generally retained for their technical rather than their personal skills.  I trust that the same is often true of financial advisors and CPA=s.

However, I found comments by Mr. Yolles very interesting and would recommend the books that he cited, as mentioned in this summary, to your clients for more edification and details on this topic, which I suspect may be more important to your clients than advisors may know. 

If implementing estate plans for wealthy clients arises in your practice and consultation about the use of trusts and professional advisors is desirable, please call Jim Modrall at (231) 941-9660 or any of the other attorneys listed below.