The United States is expected to have 1,700 new millionaires every single day by 2020. As the rate of newly minted millionaires increases, more and more families will find themselves “wealthy.” While some of these millionaires will continue to build a fortune and care for their heirs for generations, Money Magazine reports that wealth vanishes for 70 percent of families by just the second generation. The number climbs to 90 percent for the third generation.
For quick-rich folks like athletes or lottery winners, the remarkable stories of losing it all on lavish purchases, bad investments, family squabbles and personal vices are well-documented. But riches-to-rags stories are similar for those who might be considered “old money” families. From Money Magazine:
When Stephen Lovell used to visit his grandparents as a kid, it was like entering the world of Cole Porter or The Great Gatsby.
People dressed in tuxedos and sipped cocktails. They owned boats, airplanes, a hobby farm. Not to mention a lavish mansion in Ontario, Canada, and a summer home in Southampton, New York.
He estimates that his grandfather, who founded the John Forsyth Shirt Co, had a fortune of at least $70 million in today’s dollars. But through a combination of bad decisions, bad luck, and alcohol dependency, the next generation squandered that money.
“I think about it all the time,” says Lovell, a financial planner in Walnut Creek, California.
Not losing millions of dollars might seem like the easiest thing in the world for those who have to watch every dollar. But if you’re afforded the luxury of not knowing where it all comes from, it’s easy to not know where it goes until it is gone. This is especially true when estate litigation is involved, as the cost of drawn-out legal proceedings can bring even the richest of families down to the depths of financial ruin after the death of a parent or spouse.
Wills, trusts, and powers of attorney can establish control of cash, investments and real estate. They can provide a road map for how assets will be disbursed, and protect those assets from heirs considered less trustworthy.
Using available legal means to spell out and control the transfer of wealth is one of the best ways to help assure future generations benefit from the assets that exist today, as well as how to prevent legal disputes between heirs and trustees in the future after a will has been made public.
With proper preparation and smart investment, you can squash future legal issues proactively by crafting a solid will and engaging in estate and financial planning.
It may seem counterintuitive—isn’t saving for people who want to be rich, and not those who are rich? The reality is that the wealthiest people know how to manage their estates. They start early and keep up the habit once they’ve accumulated wealth. They save their pay raises. Through those efforts, they are more likely to turn $1 million into $2 million, instead of into notoriety.
The best way for younger family members to learn the value of money is to require that they earn it. Understanding how money comes in, and how easily it can disappear, can set them up to have greater care as adults and can help prevent legal issues from rising out of spite, jealousy or greed if they feel like the portion of an estate left to them in a will is smaller than they deserve.
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To help protect what you’ve earned and cared for future generations of your family, contact Forbes & Forbes today for assistance with estate planning.