Protecting Family Wealth

You may be familiar with the term, “shirtsleeves to shirtsleeves in three generations.” It refers to the notion that a wealthy estate built up by one generation will have been lost by the third generation. Its English translation is often attributed to American industrialist and philanthropist Andrew Carnegie, but the adage is neither unique to English, nor modern. The Spanish version, "quien no lo tiene, lo hance; y quien lo tiene, lo deshance" translates to "who doesn't have it, does it, and who has it, misuses it." The Japanese have a more dire version, stating “the third generation ruins the house,” while the Italians take a more poetic approach, “dalle stalle alle stelle alle stalle” (“from stalls to stars to stalls”).

In an effort to ensure financial security for subsequent generations, many people take steps to protect their hard earned money from depletion by estate and income taxes, creditors and divorcing spouses. However, oftentimes people overlook the fact that subsequent generations themselves may need to be given protective parameters when granted access to the family’s estate wealth. Some studies show that roughly 30% of family businesses and acquired wealth survive from one generation to the next, and the numbers drop drastically when looking at what survives the third generation. Parents always hope their children and grandchildren will fare better than themselves, but in an era of nation-wide bailouts and a deeply troubled economy, coupled with rising numbers of icons who are rich-and-famous, yet lack any skills or work ethic (ala the Kim Kardashians, the Bachelors, and most reality-show stars), protecting your children’s inheritance and their continued financial well-being is more complicated than merely having a college fund.

By setting up a family revocable trust, you not only avoid probate and any applicable estate or inheritance taxes, you can set up a system that both ensures your children’s financially stability, and teaches them effective financial management. A revocable trust will allow you to tailor the financial management of each child’s inheritance so that it addresses each child’s specific needs and lifestyles. Moreover, a family trust will provide your children with asset protection against their own creditors, whether those are divorcing spouses, the IRS, student loans or judgment creditors.

Effective estate planning will not only protect you and your assets in your elder years, it can ensure that your hard-earned wealth will work to the benefit of your children and grandchildren.


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