Against the backdrop of the Indian growth story, a vast amount of wealth is created. India is the second-fastest growing market for centi-millionaires ($100 Millions) worldwide, with 80% growth between 2022 and 2032 (Source: Henley and Partners, 2022).

But once wealth has been generated, the big question remains: how do we use and preserve it? In a world of increased uncertainty, possibly the most significant risk is to lose wealth over generations.

While wealth generation and preservation require two different skill sets, both have commonalities. Post-pandemic people are much more conscious of their mortality, leading them to carry out not just medical but also financial health checks, rebase their financial position, and get their affairs in order. These factors have a lasting and positive impact on wealth preservation.

Family wealth tends to dissipate over time, and the rapid turnover of the Forbes 400 confirms that inherited wealth is unstable. It no longer includes three-quarters of the founding families. Not one of the Astors, Vanderbilts, or Carnegie descendants makes the present list of wealthiest families of the late 19th century.

A 1973 Vanderbilt family reunion had no millionaires among the 120 attendees. However, on the other hand, dynasties like the Dumas empire, which transformed Hermès into a global luxury fashion brand, and the Mars family, which still owns the chocolate behemoth, have preserved their fortune, highlighting the vital role that strategic intergenerational wealth transfer planning plays.

Number of billionaire dropouts 2010-2019

Intergenerational wealth refers to accumulating, transferring, and preserving assets and financial resources across multiple generations within a family. Intergenerational wealth management is a complex process requiring careful planning, legal expertise, and financial acumen. Successful families often integrate financial strategies, legal structures, and communication to ensure wealth's sustainable growth and preservation across generations.

As the number of family members increases from generation to generation, the legacy transfer becomes increasingly complex emotionally and practically. With generations and siblings of wealthy families also more likely to spread across different countries, regulations in various jurisdictions add complexity to the complexity. Preserving wealth for one or more lifetimes requires long-term, strategic thinking and a proactive approach. The effort is worthwhile for your satisfaction and the security of those you leave behind.

Even with so much at stake, we repeatedly see typical errors that lead to missed opportunities and frustration. A case in point is a much-talked-about phenomenon is that 70% of families lose their generational wealth by the second generation and 90% by the third.

However, several factors lead to wealth erosion, validating the saying 'shirtsleeves to shirtsleeves in three generations.' Apart from inflation and poor tax planning eroding wealth, one of the most common is fragmentation, where the inheritance is spread across a broad range of heirs. Others are poor returns on investments or a lack of interest by heirs in managing the family fortune.

Lack of trust, transparency, and communication between leaders and their heirs erodes family wealth much too often. The main issue is that the next generation is generally unprepared to run the firm or manage the family money. This becomes a self-fulfilling prophecy since future leaders are not exposed to business and family finances and cannot demonstrate how to contribute.

The transfer of wealth is not strictly monetary and is much more than an estate planning obligation. It is an opportunity to share your wealth and the values that have helped you build and sustain it through the years.

It is an opportunity for open, honest communication and nurturing future-focused conversations with loved ones for your family to grow closer and stronger. It ensures your family gets the most out of your fortune and has more wealth-creation opportunities. Intergenerational wealth planning has often been associated with deathbed planning. A more contemporary perspective, however, urges people to take action now so that their families can benefit from their wealth while they are still alive.

It will be worthwhile to address a few essential but vital questions when formulating a plan, comprehensively addressing your family's needs – today and tomorrow.

1. What legacy would you like to leave, and to whom? What charitable goals do you have? Are your family members aligned with your values?
2. Is your family equipped to handle the riches they have inherited?
3. If something happens to you tomorrow, is your family comfortable with your financial details to assemble a snapshot of your assets? Do you and your family members have all the necessary documents?
4. Have you introduced your partner and kids to your financial advisors?
5. Do you have a thorough plan in place for business succession?

Attention to a few aspects can help you plan better.

• Encourage open dialogue about things often challenging to discuss, such as death, divorce, and remarriage, but they are relevant for wealth preservation.
• Endow your children with the financial literacy they need to make wise decisions. Educating the next generation on the principles of managing, growing, and preserving generational wealth is vital. Research shows that starting money management early helps kids develop lifelong habits. Remember, ignorant children grow up to become ignorant adults. Start seeing the young generation with a positive attitude as sources of "human capital" that are as important to the family as their financial capital.
• Embrace the next generation and be open to different views and values. It is observed that younger family members are interested in making a positive social impact, for instance, through philanthropy or ESG-focused investments. Given concerns about global warming, poverty, and biodiversity, Gen Z and others aren't just interested in financial profits. Increasing impact investing trends validate this observation. Notably, both goals can coexist. An affluent family can balance both imperatives with good planning.
• Be mindful of tax intricacies, particularly where multiple jurisdictions are involved. Getting professional guidance from legal, taxation, wealth planning, and investment specialists is worthwhile.
• Set clear expectations about returns and risks to align strategy across members of different generations.

The easiest way to reduce inter-generational wealth transfer risk is to write a Will that accounts for different tax regimes and asset laws. View your estate plan as a living, breathing document that evolves as your life does. One can also consider establishing a trust and appointing an impartial trustees.

My dear readers, don't wait for the perfect time to start – you may avoid short-term risks but increase risk in the medium and long term.

Be comfortable with yourself, your situation, and your lifestyle, and then focus on the next generations. Start to build a picture of gifting during life and after death. Values, spirituality, wisdom, hope for your descendants, and love for family and friends may be your finest gifts to share with those you love. Create your family love letter–written, audio, or video format. Incorporate wealth preservation as one of the new year's goals to be achieved and ensure that it receives attention and consideration in your overall financial plan.

Best Regards
 
Dr. Tarunika Jain Agrawal Ph.D. 

Alpha Research

Disclaimer:

The above views are our expectations of the economy, market and investments. The views may or may not play out accordingly. You are requested to do your own due diligence before making any investment.