Insights from

Young but not reckless...

Young but not reckless...

An Insight into: Advising younger people who inherit wealth

Young but not reckless…

There is an art to passing great wealth between generations successfully. It involves understanding expectations and social pressures at least as much as tax structures and investments.

Social concerns can include protecting children from unwelcome attention as they grow and when they inherit: a transfer that can start to happen at a very young age. In a digital world, these concerns are even more acute.

Few substantial estates are passed on now without the protection of trusts, family investment companies and advisers. All of these help the process.

But whatever protection is given to substantial wealth, the emphasis for those passing it on is financial education and good stewardship. Above all, there is usually a family dynamic to respect and often a shared purpose.

However, as with any family, conflicts can arise and these can test the bonds holding people together. Making sure that all needs are met can involve a great deal of thought about the individuals concerned, their interests and how to find a balance with the family’s needs as a whole.

There may be duties to employees and shareholders. There may also be a wish to display a particular public profile, or even none at all.

Timing is important

Advising young people who are in line to receive life-changing fortunes therefore requires emotional intelligence and sensitivity. This is never more the case than when appointed to advise a teenager – or an even younger child.

It can be an awkward or even anxious time when an ultra-high net worth family decides to engage in educating their children or others in the family about their inheritance. Awkward because families with substantial wealth usually dislike drawing attention to themselves and that can be another reason to put off this discussion with heirs. Anxious because the instinct may be to shield children from too much knowledge about the extent of family wealth, for fear of overshadowing their childhood.

In my experience as a private client adviser, most teenage heirs do have a sense that there is considerable wealth in their lives, but rarely an idea of how much, why it is there and what they might expect to inherit.”

Deciding the right time to start the conversation with them is a judgment call that depends on the individuals concerned but, in my view, it is best started in the mid-teens. As the trusted adviser to one family, I was asked to help in the process of advising a 13-year-old, who was unaware that he was already due to inherit millions of pounds. I began by encouraging him to understand the idea that what is important is what things mean, not their cash value. Therefore, an important first step in preparation and education is to give a grounding in whatever combination of property, business, shareholdings or land sustains the wealth that the heir will inherit, and the expectations that come with those.

In Summary

Trusts, family investment companies and advisers can help young people manage substantial wealth.

Deciding when to start advising a young person who will inherit large sums.

Create a financial creche for investment to inspire a beneficiary.

Common sense and sensitivity are important.

Send this to a friend