Wealth transfers: How to beat the 'Shirtsleeves to Shirtsleeves' curse

George D. Marron, BridgeTower Media Newswires

Have you heard of the "Shirtsleeves to Shirtsleeves in Three Generations" curse? This is the story where the first and second generations build family wealth and the third generation squanders it. It is often followed by the statistic that "70% of estates lose their assets and family harmony following the transition of the estate." (Roy Williams and Vic Preisser, Estate Planning for the Post-Transition Period, 2007)

The story describes the very real danger that your family business or wealth is unlikely to survive into the third generation.

We appreciate the "Shirtsleeves to Shirtsleeves" discussion, but you have to wonder whether it is something of a self-fulfilling prophesy. If you're in the shoes of the successful business owner or wealthy parent, the story makes you think:

- I don't want to lose my wealth;

- I don't want spoiled, entitled kids; and,

- I need to protect my assets.

While the story may be good intentioned, you can see how it steers the conversation toward the parent fearing the unknown (or worse distrusting the child) and seeking control through planning to protect the assets.

Each year families engage attorneys and advisors to design wills, trusts, family limited partnerships, life insurance trusts, dynasty trusts, etc. to prepare their assets for transition to their heirs.

Yet, according to Williams and Preisser, 70% of these plans fail. Why? Because we spend a disproportionate time preparing the assets for transition and fail to prepare the heirs.

Williams and Preisser concluded that "the major causes of post-transition failures were discovered to lie within the family." In other words, it wasn't asset and estate plan failure, but family dynamics which resulted in the loss of wealth and discord.

Paternalism is a significant contributor to this problem. Paternalism often sends the message that an heir needs to be cared for, may not be "good enough" for the legacy and may even lead to guilt and anxiety as to how to manage moving forward.

So, how do we solve this problem? It's time to change our approach. We need to do a better job of preparing the heirs.

We recognize that this is not an easy task. In fact, family wealth, estate plans and health issues may be some of the most taboo subjects within a family. This barrier must be overcome in small steps and approached with a different perspective.

For example, instead of focusing on the fear that a child may squander an inheritance, why not engage the child with opportunities to build on his or her strengths? Remember, when we are speaking of a "child," we often are talking about capable, younger adults.

If you want to break the "Shirt­sleeves to Shirtsleeves" cycle, create an environment where your heirs have an opportunity to use and develop the skills that are necessary to succeed. Here are a few suggestions:

Have conversations (but don't preach) about your values. These conversations should not be focused solely on your business or wealth. In fact, they should reflect your faith, family origin stories, etc., to act as a guide for family decisions.

Include the children in family decisions. The earlier you start, all the better. Empowering your heirs with a voice will build confidence and decision-making abilities. Not sure where to start? How about picking charities to support, family vacations, caring for property, hiring contractors, managing a smaller investment account. Small decisions still build the skill set.

Introduce your family to planning topics - business plan, estate plan, and/or investment plan - in small, manageable bites and provide an explanation as to your goals, values and purpose in your planning. For example, helping your younger adult child to set up his or her own estate plan, review 401k options, etc. and casting it in the light of your values should normalize these discussions.

Following these suggestions will open the lines of communication, develop essential skills in your children and better prepare them to avoid the "Shirtsleeves" curse.

So, how to get started? Take small steps and invest in your heirs.


George D. Marron, JD, CFP is Vice President for Karpus Investment Management, a local independent, registered investment advisor managing assets for individuals, businesses, non-profits and trustees. Offices are located at 183 Sully's Trail, Pittsford, NY 14534 (585-586-4680).

Published: Fri, Nov 08, 2019