Family Fortune: Heirs apparent? Well apparently not....
AMERICA’S Vanderbilt family could have been the richest family in the world today. At the time of his death in 1877, patriarch Cornelius Vanderbilt had amassed a US$100 million fortune (about US$215 billion today) from railroads and shipping. The money was inherited by his son, William Henry Vanderbilt, who doubled the wealth before dying nine years later and leaving the family fortune to his wife and eight children. By 1973, just two generations later, there was not a single millionaire left in the family. The fortune was all gone.
Sadly, the Vanderbilts are far from the exception. Being ‘to the manor born’ no longer guarantees life-long affluence. A global study by The Williams Group among 2000 wealthy families found that 70% of family fortunes were squandered by the second generation of heirs – and 90% were gone by the third.
Why are so many wealthy families having to trade their Ferraris for Fords? Roy Williams and Vic Preisser, authors of Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values, collected data from more than 3250 families who had lost their fortune. They found that less than 3% said poor planning and investments caused their misfortune. 25% said heirs were unprepared, and a high 60% said lack of communication and trust in the family had led to their downfall.
Don’t bank on it
Astonished by these findings, Sanlam Private Wealth coopted two self-made wealthy South African families, each with a crop of lively, well-to-do kids, to help them understand first-hand what was going on in these families.
FAMILY ONE:
Patriarch, Stanley, is a classic example of an entrepreneur who grew his business from scratch and made a success of it. He has three daughters Chrisley (24), Sheri (22) and Lieneke (14) who aren’t used to hearing the word no. He has yet to share his financial vision with them and believes social media has changed his daughters’ expectations and desires in life.
“We’ve definitely sheltered our children from our finances. They were never aware of the difficult times. They live a luxurious lifestyle, they may earn salaries but we cover everything else such as food, rent and phones among others. I’ve learned all my financial lessons first hand and the hard way, it’s time my children did the same.”
FAMILY TWO:
Matriarch Nomfundo is an entrepreneur who has dedicated her life to growing her wealth to the benefit of her two children. Her boys, Lwazi (18) and Kwanda (13) are living the dream in Jozi, a life of luxury and opulence. Nomfundo has painstakingly built her wealth and provided a comfortable lifestyle for her kids but she is worried that her children don’t value money as she does.
“My children have no understanding of the value of money. The biggest fights we have in the house are about cleanliness and money… The kids know how to sweet talk me into giving them money. I rarely say no, and they know it,” Nomfundo said.
Rather dramatically, the families agreed to ‘lock’ their young in a bank vault with their full inheritance in R200 bank notes. Rows and rows of bank notes were quickly reduced when the kids followed prompts to take amounts away for taxes, obligated expenses as well as for their dreams.
Kwanda put away stacks of cash for his coveted Bentley, Chrisley realised that she’d exhausted her cash without providing a home for herself, and Lwazi found that he’d forgotten to include food in his equations.
Within minutes, they were left with a fraction of their inheritance after estate duties, start-up costs for business ventures, buying cars, houses, clothes and travel were accounted for. Deflated by the prospect of living a far more modest lifestyle, the children were, hopefully, left with a more realistic idea of how to manage their future.
“When someone builds up a fortune with the hopes of giving his family a better life, there is often the expectation that the efforts will be noticed and appreciated by the children. However, being born into privilege often inhibits vital values from developing and can leave children disinterested in going the hard yards,” said Jamey Lipschitz, Head of Wealth Management at Sanlam Private Wealth.
He said the reality is that estate planning, while a vital process in the transfer of wealth from one generation to another, does not always result in the transfer of values across generations. “At the core of this disjuncture is often the reality that family finances remain an unpopular topic of discussion, more so when parents are concerned that family wealth might spoil their children. That said, it remains the responsibility of parents to ensure the correct values are instilled in their children from an early age.”
Money talks
Angela Hough-Maxwell, a psychologist, said it is difficult for parents and children to speak about money – for a number of reasons.
“Often they want to protect their children from the difficulty, anxiety and stress that is associated with money and work. But that it is important to engage children on such topics. “Children of a certain age should be included in family discussions about money, not yet making the decisions, but hearing the discussion. It is worthwhile taking your child to your place of work. It may also be valuable to engage children in discussions about how you have divided wealth and how investments work,” she said.
Marteen Michau, Head of Fiduciary and Tax at Sanlam Private Wealth, said the challenge for parents is preparing their children adequately to manage, sustain and grow family wealth.
“There is a need for different generations to hold a round-table discussion sharing stories, and agreeing on values and long-term goals in order to create a family manifesto so there is a clear wealth plan in place.”
Across generations, 25% of wealth is lost because heirs are unprepared to inherit. Sanlam Private Wealth is hoping that by highlighting the issues and telling real-life stories, it can open the discussion around wealth and help to improve the outcomes.
To meet Stanley, Nomfundo and their heirs, watch their bank vault experience and use an online tool to track your or your heirs’ own inheritance, visit www.thefamilyfortune.co.za This is sponsored content