The Vanderbilt family was once the wealthiest in America. Fifty years after Cornelius Vanderbilt’s death, his descendants had squandered the greater part of his $200 million estate. At the family’s first reunion, in 1973, when over 120 members gathered, not a single one was a millionaire.
This story is not uncommon. According to Business Insider, 70% of the rich families lavish all their inheritance on the second generation. By the third, about 90% of it is gone.
It’s because most families are busy making wealth and never plan how to protect their family wealth for the next generation. Without proper structures in place, even the most substantial fortune can vanish like the early morning dew.
And the numbers are grim for people at all financial levels. Whether we’re talking about a family worth $50,000 or $50 million, the patterns are the same: Families that create wealth seldom have any clue how to preserve it. They are very good at building, awful at making it last. They become accomplished hoarders without ever mastering the science of protecting their assets.
The Psychology of Depleting Family Wealth
Most wealth creators are entrepreneurs, risk-takers, and problem solvers. But that mindset doesn’t always help them protect what they’ve built. It is these same traits that create fortunes that can destroy them in the next generation.
The children of wealth creators often grow up living the life of luxury, believing money can be made easily. They notice their parents’ accomplishments but not the process behind them. They inherit the assets but not the skills, the money but not the mindset. This is what estate planners like to call “preparation without preparation,” being able to access wealth without knowing how to handle it.
Cultural issues make it worse. In a large majority of families, the money topic is a taboo subject, which makes researchers call it “financial silence syndrome”. Rich kids are raised with money a lot of times, but that doesn’t mean they’re trained to actually manage it properly. This leaves them unprepared to manage the fortunes that come their way.
How to Protect Family Wealth for Generations: 8 Proven Steps
The families who do well for themselves do more than save; they establish guardrails, they share the real story, and they teach stewardship. Here’s exactly how to protect family wealth in ways any family can do right now.
Go Beyond a Will
A will says who gets what. A trust states how and when, where, and for what purposes.
Smart families use trusts. (Funds might become available at milestones, such as graduation from college, at a certain age, or after you have been working outside of the family business for a certain number of years.) Still others protect money from lawsuits, divorce settlements, or reckless spending.
The Rockefellers were among the earliest to create trusts that have conserved the family’s wealth for six generations. Legal structures weren’t their secret, and their people did a lot less to mandate, enforce, or support what we would recognize as responsible behavior. Learn more about UK trust options here.
Review Plans Often
Life doesn’t stand still. Marriages, divorces, new businesses, and shifts in the tax law all change the landscape of wealth protection. Smart families revisit their plan every three to five years, with the assistance of a good lawyer and a tax adviser. This is actual family wealth planning.
Try to plan these reviews around significant events in your life, such as when your kids reach the ages of 18, 25, and 35; when grandkids are born; when the family business changes hands; or after substantial new tax laws are enacted. By keeping up with reviews, you avoid the chances of your plan becoming outdated.
Hold Family Councils
Schedule quarterly or annual family retreats. Share objectives, decision-making protocols, and means of settling disputes. Additionally, many families develop a basic “family constitution,” a one-page mission statement and rulebook that everyone is expected to follow.
It must not be as though board meetings have moved into someone’s living room. Make them personal. Share stories, celebrate successes, and address issues openly. Some families pair these with vacations or high-dollar dinners, creating pleasant associations with money talks.
Train Heirs, Before They Inherit
And giving a large sum of money to someone who has never managed a budget in their life? That’s asking for trouble.
Test early: Allow heirs to handle a small investment account in their 20s. Have them attend family business meetings as observers.
Start with small amounts and low stakes in the beginning, building up both as the skill level increases.
Diversify Everything
Families that master how to protect their family wealth spread it across several areas, including real estate, public equities, private businesses, bonds, and sometimes international assets. When one industry is in crisis, others can provide stability.
But diversification is about more than just asset classes. Consider geographic diversification, currency diversification, and even intergenerational investment in knowledge and skills.
Pick Advisors Like a CEO
Cheap advice can result in a significant amount of lost wealth. Successful families establish a trusted network of legal, tax, and financial advisers and instill in their heirs the mindset of critically evaluating whether those relationships are of high quality, regularly monitoring the performance of those professionals, and finding new ones when they’re not up to par.
Find advisers who understand multi-generational planning, versus those just looking to hit a quick tax dodge. The best advisers are family partners, scrutinizing your values and long-term view, not just your balance sheet.
The family story is precious, however contentious; the key is preserving it.
Without a story, money means nothing. Tell stories of how the family’s first generation made its money, the failures along the way, times when the business had to change direction, late-night moments of anxiety, and the sacrifices. Write letters or messages for the future, explaining key decisions.
Stories create emotional attachment to money in a way that spreadsheets never will. Heirs who know what their relatives went through to secure their success are less likely to squander or fritter it away. You could create a family history book or even have someone document your process as you build wealth.
Fund Lifelong Learning
Curious minds rebuild wealth. Unprepared minds often struggle; many families establish school funds for graduate degrees, executive education, or international internships. Encourage junior heirs to gain experience outside the family business, to develop skills, and to gain outside perspectives.
Education does not necessarily mean being confined within the four walls of a classroom. Consider travel, mentorship programs, entrepreneurship classes, or apprenticeships. The objective is to develop capable, self-assured individuals who contribute value to society, not just because they come from wealth.
Start Today Here’s How
And you don’t need millions of dollars to start practicing these habits. Start with fundamentals:
- Review your existing will. Is it up-to-date and complete?
- Visit with an estate planning attorney on trust options
- Host Family Financial Meeting This Quarter
- Write a one-page family mission statement
- Tell one true family story about money at the dinner table tonight
Final Takeaway
And learning how to protect family wealth isn’t about hoarding money or controlling future generations. It’s recognizing and honouring the sacrifice and effort that led to that financial wealth, while providing your family the resources, knowledge, tools, and structure to maintain and build on that base.
Without wisdom, money is soon gone. Narrative, framework, and stewardship are what make wealth last over generations. The families that beat the odds don’t just transfer wealth; they transfer the capacity to be deserving of that wealth.
The story of your family’s wealth remains unwritten. Make the next chapters something you’d be proud to read.
