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Don’t be a fleeing heir or end up in shirt sleeves

Study shows large percentage of families will lose their wealth in succeeding generations

Last month we talked about the great wealth transfer tension; there’s more. Financial planner Anthony Williams describes a study by Investment News suggesting 66 per cent of children will ultimately fire their parents’ financial adviser once they receive their inheritance. These folks are called fleeing heirs.

I would like to know the statistic for farm families, as many don’t even have a financial planner!

Advisers to farmers should be set up to work remotely, using zoom.us or another form of video conferencing. We ask our planner to visit our farm and he obliges. You need great chemistry with financial planners and accountants, so I suggest developing a relationship with your parents’ advisers well before death so you create trust and empathy. You also want to find someone who takes a holistic approach to managing money and wealth.

Perhaps the fleeing heir has their own issues. They are DIY folks who like to invest their own way with fewer fees. Maybe the heir never had any intention of working with Mom’s adviser. Perhaps the heir has been living as though she already had a windfall and while she may like Dad’s adviser, she’s not interested in having anyone keep tabs on her finances. In order to prove dominion and control over the assets, the heir by definition must move the assets to someone else. They flee.

Shirt sleeves to shirt sleeves in three generations is about losing wealth in the succeeding generations. A study by Williams Group revealed 70 per cent of families will lose their fortune during the lives of the second generation, in other words, 70 per cent of more than 3,200 families had succession plans fail. Ninety per cent will lose their wealth during the lives of the third generation.

Why? Many reasons: taxes, inflation, poor investment decisions, adverse market conditions, and the natural dilution of assets as they are shared among generations of heirs. But there is another reason that I think resonates for farmers.

The most compelling reason fortunes are frittered away is because younger family members are ill prepared or unwilling to shoulder the responsibility of wealth stewardship. They have grown up with plenty of money and are a step or two removed from the work ethic or drive of the people who made it for them.

Read that last paragraph again, out loud.

Does your successor have great financial management skills? If you died tomorrow would the farm start a downward spiral spin into financial loss? Can you picture some young farmer in your community who was given much and lost a lot?

Wes and I are a second generation who has watched our farming parents struggle, live frugally and we have been able to acquire greater wealth with hard work, and the blessing of God. Our successors are third generation who don’t have personal experience of want or struggle.

How do we prevent the loss of wealth? We communicate. This means family discussions, using a farm family coach who has a team of accountants alongside him, family meetings and being very proactive. Most young farmers don’t want to hear anymore about the high interest rates of the 1980s but your stories of trials will help keep wealth decisions in perspective. Share your values, your money scripts. What do debt and risk management mean to you?

Many wealthy farmers that I coach have no intention of selling the entire farm to their heirs. The next generation can only afford to buy shares, some assets, not the whole piece. The parents engage the younger generation by asking about their dreams and farm vision, getting them excited about their own future.

The founders can help fund that future but, in a responsible, businesslike way with well-written agreements, and professional input from coaches, accountants, financial planners and lawyers. This takes intentional, regular communication.

The other option of not communicating or preparing the next generation to manage wealth will be going from shirt sleeves to shirt sleeves in three generations, and having the family destroyed or ripped apart over money.

Find a financial planner who can serve your farm family for more than one generation. Fleeing heirs may not be receiving sound advice or if they are receiving financial wisdom they are choosing not to act upon it.

I suspect that many successors in their early 30s need a professional accountability partner in the form of a financial planner to help them navigate keeping their wealth and growing it for their aging years. David Chilton, author of The Wealthy Barber, says that “wait” and “save” are not part of the next generation’s vocabulary.

The parents or founders also need to take responsibility for their avoidance behaviour. They know that fairness issues or inheritance talks cause conflict, so rather than embracing it as a risk management strategy for the secure legacy of the farm business, they are silent. You need to face your mortality (see my blog on writing a will with joy). You need to get comfortable with discussing your estate plan with your children and hire someone to keep the conversations safe and respectful.

One farm family in Alberta found it very helpful to watch my YouTube.com video on “Finding Fairness in Farm Transition.” Just Google “Elaine Froese Farm Family Coach.”

Again you have the right to distribute your wealth as you choose, but if you highly value richness in relationships, I suggest you use all the tools you can to have courageous conversations that preserve understanding and relationship.

If your financial adviser is nearing retirement, are you grooming his or her successor to be part of your family’s planning process? This is where I rely on my CAFA colleagues to provide great referrals for farm families across the country. Go to the Canadian Association of Farm Advisors website to find someone in your region to help you build your team of advisers.

The next generation is not used to waiting. They want respect and have a more collaborative planning style. Young farmers on Twitter share heaps of information, quickly. Our successors want goals-based solutions, so it is time for each generation to get clear about what they want, and when they want it to happen.

Money is a form of energy to create growth and good. What does wealth management mean to you?

Write to tell me you have had a financial planning conversation with the next generation on your farm and I’ll send you my “What do I really want” worksheet.

You’ll find me on my website here.

About the author

Contributor

Elaine Froese is a certified farm family coach and farm partner. Seek her out at www. elainefroese.com or call 1-866-848-8311. Buy her books for your mom. Share your stories of how these phrases have impacted you. Elaine wants to hear from you on Facebook at “farm family coach” or Twitter @elainefroese.

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