Help clients deal with inheritance and generational wealth

Apr 25, 2023

Research by Cerulli Associates projects total bequeaths to exceed $84 trillion by 2045. This is restricted to U.S. residents.

I don’t know about the corresponding figures for India, but safe to say that intergenerational wealth transfer is common amongst the affluent. Apartments, land, ancestral homes, businesses, stocks, bonds, jewellery, bullion, antiques and art will change hands.

The first step for a successful wealth transfer between generations takes place in the mind of the wealth creator. Before you focus on how to manage generational wealth within a family, understand how your client personally views and interacts with the idea of wealth.

In his book Strangers in Paradise: How Families Adapt to Wealth Across GenerationsJames Grubman draws on cross-cultural psychology to teach the importance of healthy integration when a family has acquired wealth.

There are three coping strategies that immigrants commonly use to adapt to their new surroundings: avoidance, assimilation, and integration. According to Grubman, when a lower- or middle-income family comes into wealth, they’re often like immigrants arriving in a new land. People who migrate to the “land of wealth” fall into the same three categories.

Avoidance: Ignore their Wealth

Many who come into wealth harbor fears that they will lose critical parts of themselves or their heritage if they embrace a more affluent lifestyle. Like immigrants who don’t learn the language, hold firmly to their old customs, and rarely associate with the natives of their new country, avoiders cling tightly to their middle-class identity.

Some level of concern for preserving values and relationships among the newly wealthy is certainly appropriate, but this can become a problem when people fearfully hide their wealth from the world, and even from their children.

By and large, the avoidance response is an anxiety-type paradigm. Avoiders are constantly asking themselves, ‘What if?’ If I spend money, what if they see, and then I am a target for fraud, or loans and gifts? What if I seem like a greedy person? What if I lose my soul when I embrace wealth?”

Avoiding can also lead to family turmoil. Children of avoiders may not learn of their parents’ wealth until well into their adult years. This can lead to feelings of hurt and betrayal, especially if they have made major concessions in their life decisions based on the assumption of being limited financially.

The second generation is also left to manage a large body of wealth without ever observing or having been taught positive wealth-management skills. Too often, when avoiders die, fear and money are bundled together tightly and passed on as one inheritance. As a result, the next generation is likely to lose wealth.

How can you tell if your client is an avoider?

  • Do they have negative, toxic stereotypes about the wealthy?
  • Are they afraid that embracing wealth could make them become like the stereotypes?
  • Do they fear that wealth will make them a target for fraud, scams, or hostile envy from others?

Assimilation: Blend with Eagerness

This strategy of transition makes a clean break from the past and opts to relish the luxuries available in the land of wealth. Many people who assimilate to wealth do not want others to know that they come from more humble circumstances.

Where avoiders tend to hold on to their money and never feel safe, assimilators experience an exhilarating sense of safety and freedom—but they risk spending themselves out of the wealth they enjoy.

Like the children of avoiders, the children of assimilators rarely see positive examples of wealth management. The skills that are critical to managing a family’s wealth across generations (such as weighing a purchase against one’s budget) are lost on assimilators. An assimilator may wonder why anyone with millions of dollars would bother with a budget.

How can you tell if your client is an assimilator?

  • Do they believe that money is a sign of success, power, or prestige?
  • Does the idea of wealth arouse feelings of powerful desire?
  • Do they try to avoid people finding out about their humbler past?

Integration: Mix their Old and New Lives

Integration is the best—and most challenging—strategy for transitioning to a life of wealth. Integration involves maintaining the values and skills from the middle class that are the most useful and treasured while remaining open to learning new ways of living that are unique to wealth.

Integrators talk openly with their children about their wealth and involve them in financial decisions. Integrators want to learn the financial skills that are necessary to managing wealth and model them for their children regularly. Integrators generally feel a sense of peaceful continuity between the land they left behind and the land to which they have come. They focus on helping their children understand how to enjoy wealth while keeping important values alive in their home.

How can you tell if your client integrating well?

  • Do they put little stock in stereotypes about the wealthy?
  • Does the idea of wealth trigger a fairly minor emotional response?
  • Do they feel a sense of continuity between their past and present, embracing their new life while also holding on to the values and people they care about from their past?

Wrapping it up

The three strategies are not mutually exclusive. Individuals may move in and out of each strategy over time. To settle into a life where the parts of the past that they value are well integrated with the parts of their new life that brings joy and security, they may need to break out of avoiding or assimilating from time to time.

The things that help avoiders are the same things that help people with anxiety. No amount of financial security can help with avoidance because the problem isn’t the money—it’s the ‘What-ifs’. The trick for avoiders is to turn the ‘What if?’ into a ‘So what?’ Challenge avoiders to spend a bit more in order to see that the land of wealth may, in fact, be a safer place than they believe.

Assimilators need to learn to enjoy the benefits of wealth while exercising moderation. Identifying activities and things unrelated to money that bring joy can be a good start.

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