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When meeting with affluent family clients, advisers frequently invoke the warning: "shirtsleeves-to-shirtsleeves in three generations."
This popular quote strongly suggests that, without careful planning, a family's wealth will be dissipated by the time it reaches the grandchildren of the wealth-creating generation. It is thought to derive from the old English proverb, "there's nobbut three generations atween a clog and clog."
Over the next 35 years, the largest transfer of wealth in history will take place.
In the U.S. alone, it is estimated that more than $40 trillion will transfer from baby boomers to the rising generations. In addition, the ownership of thousands of family businesses will transfer to younger family members.
Most families aspire to preserve wealth, values and legacy over the generations. Research demonstrates that a number of factors influence a family's ability to reach that goal.
Almost always near the top of the list is a family's shared commitment to community, service and philanthropy.
A major study focused on 2,500 affluent families who owned and sold businesses, or who had inherited money.
The authors discovered that, over 20 years, 70 percent of those families lost control of their assets (and family harmony) in the first, second or third generations following wealth transfer. Sixty percent of the time, those failures were due to a lack of trust and poor communication.
This research was conducted by Roy Williams and Vic Preisser, and published in 2010 in two books: Preparing Heirs and Philanthropy, Heirs and Values.
"Where heirs were encouraged and intelligently guided to participate in family philanthropy," said the authors, "it had a profound impact in three major areas of their development and preparation for later life. The three major areas were values, mission and accountability."
Another study of nearly 200 families that successfully navigated the "shirtsleeves-to-shirtsleeves" challenge found that shared family philanthropy and community service was a leading best practice among those families. The study is "Three Pathways to Evolutionary Survival: Best Practices of Successful, Global, Multi-Generational Family Enterprises," by Dennis Jaffe and Jane Flanagan.
The authors state:
In the work I do with wealthy families, thoughtful, facilitated communication around values, world views, passions, interests and visions is an essential part of planning and implementing a meaningful family philanthropic journey — effectively and strategically.
Across the generations, the deepening of good relationships (and the repair of those that are challenged) is an important result of working together as a family to identify shared values and collectively design philanthropic initiatives.
The bottom line is clear. In the transition of wealth and values from generation to generation, and the avoidance of "shirtsleeves to shirtsleeves in three generations," successful families look to rising generations as irreplaceable resources.
Philanthropy is a remarkably effective table at which all family members can sit — where they can share, teach, learn, value, grow, change and consistently improve.
Bruce DeBoskey is a Colorado-based philanthropic strategist. He is the founder of The DeBoskey Group helping, families, businesses and foundations across the U.S. design and implement thoughtful philanthropic strategies and actionable plans. He is a frequent speaker at conferences on philanthropy. Visit deboskeygroup.com.