The United States is currently experiencing one of the largest wealth transfers in history. Over the next decade, an estimated $80 trillion to $100 trillion in assets will be passed down from the baby boomer generation to their descendants. However, a key question arises: are their heirs prepared for this?
A study by AMG National in 2023 revealed that 90% of wealth disappears by the third generation. This alarming data has prompted more and more families to think about how they can ensure the continuity of their wealth for generations to come.
Financial advisor and author John Nebeker believes that the answer lies in adopting strategies used by some of America’s wealthiest families – the “Family Bank”. In his book “The Family Bank: The Key to Generational Wealth,” Nebeker shares how families like the Rockefellers have utilized this method to not only accumulate wealth but also cultivate responsible asset managers in the next generation, rather than mere beneficiaries.
Nebeker presents five key recommendations that can truly facilitate the transfer of wealth:
Traditional estate planning often falls short of achieving its long-term goals. While it may protect assets from external threats, it often overlooks risks within the family, such as poor financial management, inheritance disputes, or succession rights.
“Traditional planning methods often struggle to fulfill the wishes of ancestors,” Nebeker points out. “Those heirs who are extravagant tend to squander the inheritance quickly.”
If you already have an estate plan in place, there is no need to worry; adjustments can be made. Consult with your estate attorney or financial advisor to align your plan with your family’s long-term wealth goals.
The “Family Bank” is a non-traditional structure that can foster prosperity within the family, grow assets, and provide support for future generations. Rather than directly gifting assets, families offer conditional loans to heirs for purposes like education, entrepreneurship, or homeownership.
“Families replace gifts with loans and inheritance rights with opportunities,” Nebeker states.
Many successful families utilize trusts to manage their Family Banks. Trusts help reduce estate taxes, provide legal protection, and maintain generational control over the family’s finances.
While many parents avoid discussing estate plans with their children, secrecy about financial planning often does more harm than good.
“Money can cause division, but with the right approach, it can also bring people closer together,” Nebeker says. “With proper planning, money can become a unifying force for families.”
Start by setting goals and expectations and inviting family members to participate in discussions to help them understand the overall plan and values.
Family Banks often have a “Board of Directors” or a team composed of trustees responsible for overseeing assets and making decisions regarding loans and investments. These individuals are often family members but may also include external advisors.
“The selection of trustees may be the key to the success or failure of a Family Bank,” Nebeker emphasizes. “They need to be capable of managing assets, maintaining connection with the family, and upholding the founding values.”
Regular board meetings and clear communication help maintain transparency and ensure the effective operation of this structure.
Inheritance of wealth requires not only money but also knowledge. The Family Bank model emphasizes developing the financial acumen and sense of purpose among heirs.
“Nurturing young members is a core responsibility of the board,” Nebeker says. “When they experience borrowing, investing, and taking on responsibility firsthand, they are more likely to succeed.”
A well-managed Family Bank can provide heirs with the tools to grow wealth, contribute to society, and uphold family values.
Generational wealth transfer is not just about passing down assets; it’s also about transmitting vision, values, and responsibility. Through the right strategies, your inheritance can benefit future generations rather than burden them.
“The essence of the Family Bank is to create opportunities, not foster privilege,” Nebeker asserts. “This is the key to the enduring transfer of wealth across generations.”