I’m a Financial Planner: 8 Mistakes To Avoid When Building Generational Wealth

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Reaching financial success is one of those things people only dream of — a life where you’re not living month to month, where you can live a comfortable lifestyle and also splurge without worrying about breaking the bank. 

But extending that economic security to future generations? That involves some next-level planning.

Fortunately, there are ways to guarantee building generational wealth without falling into any mistakes.

GOBankingRates spoke with Stoy Hall, certified financial planner and CEO of Black Mammoth, and Krysta Dos Santos, certified financial planner and head of financial planning at GenTrust, to talk about how people can avoid any pitfalls when it comes to solidifying their financial legacy. Here’s what they said.

Attempting To Build Wealth All at Once 

“When your family doesn’t have the wealth, you try to build it all at once,” Hall said. 

He said this creates undue pressure and you take on unnecessary risks by attempting to build it all at once. 

“Take your time, it’s a journey and if built over time, will hold up to the craziness of life,” he advised. “Think of building a foundation of a property, a solid foundation will survive storms.”

Improper Legacy Structure 

“Many first-gen wealth-builders have no experience in building a legacy, thus they don’t know how to structure their legacies correctly,” Hall said.

“For example, one may have young children. Some first-gen will create a simple will and trust but not include language or restrictions on assets for generations to come, thus their children may get access to and use all the money.”

He added that this effectively stops the generational wealth after one decedent.

Dos Santos equally agreed.

She noted that some of the foundational steps to address include collaborating with advisers to establish a sound financial plan, partnering with attorneys to draft a comprehensive estate plan, and collecting and organizing crucial information such as trust documents, account statements, etc. — all in one centralized location. 

“There are resources available online to help families document their complete financial inventory.”

She added that while these initial steps are necessary, there is another component that is arguably even more important — family legacy planning. 

“Often dubbed as the ‘softer side’ of wealth management, it’s an aspect that is sometimes overlooked, yet it may hold the key to long-term success.” 

According to Dos Santos, the primary cause of unsuccessful outcomes lies in a lack of communication and trust.

Not Openly Communicating

“Open and clear communication within the family is the cornerstone of a successful multigenerational wealth transfer,” Dos Santos explained. “While this might seem basic, it is surprising how many families avoid these conversations.

“Discussing your estate and financial plans with your loved ones helps align everyone’s expectations and ensures they understand your intentions.” 

She added that sharing the “why” of your estate is as important as the “what,” as this approach fosters trust, reduces the potential for disputes and empowers the next generation to be responsible stewards of the family’s wealth.

Forgetting To Hold Regular Family Meetings

According to Dos Santos, family meetings serve as a crucial platform for open and constructive communication within the family. 

“They provide a structured environment where family members can come together in a way that promotes transparency, alignment of goals and the nurturing of shared values.

“A typical family meeting might include obvious topics — such as updates on the family’s estate plan and discussions about investment strategies — as well as unexpected topics like philanthropic goals, drafting a family mission statement, capturing family history and investment education for the rising generation.”

She added that it’s also an opportunity for every family member to voice their thoughts, ask questions and contribute to the decision-making process. 

“This structured approach ensures that everyone is on the same page and helps forge a unified path toward realizing the family’s mission and preserving its legacy.”

Not Creating a Family Mission Statement

“A mission statement is a short summary of what matters most to you as a family, the principles that guide you,” Dos Santos explained.

“Creating a mission statement together is a powerful way to reflect upon your values as a family and gives everyone a clear understanding of what you stand for and expect of each other.”

She said that having a shared vision, a clear purpose, values and goals provides a roadmap that lays out where you are headed as a family and how you will get there. 

“It provides a clear framework and set of expectations to follow based upon your agreed-upon values and beliefs.”

Failing To Build Financial Acumen

According to Dos Santos, financial education is crucial for the next generation. 

“It empowers them with the knowledge and confidence to handle inherited wealth,” she explained. “This ensures they can make informed investment decisions and contribute to preserving and growing the family’s assets, aligning with the family’s values and goals.

“With financial literacy, they are better prepared to navigate the complexities of wealth, ensuring a successful and responsible wealth transfer.”

Erroneously Believing It’s a One-Time Task

Transferring wealth from one generation to the next can be challenging, Dos Santos said, but she adds that taking the time to help your family prepare for what’s ahead creates the best chance for success. 

“Family legacy planning is an ongoing effort, not a one-time task. Embrace the journey, and with each step, you’ll further solidify your family’s financial legacy and discover the meaning of true ‘wealth’ in a family.”

Failing To Account for Joy 

“This may go for more than people building generational wealth but we as humans need to focus on our own joy as well,” Hall said. “This joy is what brings us energy and can allow us to grow personally. If you are not focusing on this joy then, your wealth-building will feel like a job and cause anxiety. And we all know what happens when we are overwhelmed.”

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