From inheritances to wayward children to trophy wives (and husbands), high net worth families struggle to manage problems that blend personal issues with large sums of money. Here are 10 situations that financial advisors say challenge even the healthiest families.

By Richard Bradley



Perhaps the most universal challenge for high net worth families is the transferring of wealth to subsequent generations. The pitfalls are substantial: All parents want to see their children financially secure, but at the same time productive and hardworking. So how do you leave your kids wealth in a way that leaves them feeling inspired, but not lazy, spoiled or apathetic?

“This is a problem we regularly visit with our clients about, and people come at it from a variety of perspectives,” says Kurt Rieke, managing director at Hall Capital Partners in San Francisco. “We’ve got clients who’ve made a ton of money and don’t want to give their kids any of it, and they can be pretty adamant: ‘I started with nothing and I’m going to help my kids get a good education, and they can take it from there.’”

But most of his clients, Rieke says, aren’t that extreme. “They’re trying to thread the needle and provide their kids with a financial support system that will help them but not ruin them.” And many of the parents who initially take a hard-line stance mellow as they age; most wind up wanting to give more money to their kids.

In addition to the question of how much to leave your children, there’s the issue of timing: Do you start transferring wealth while you’re still alive, and how do you structure the transfer? One advisor — who, like several interviewed for this story, requested anonymity to protect his client relationships — tells of a young man who came into the first disbursement from a family trust, about $800,000, at age 21. In two years, it was gone — spent on travel, cars and partying. The family lawyer recommended that he receive subsequent disbursements from the trust in thirds at age 35, 40 and 45, to which the chastened beneficiary agreed. 


It’s one of the most common consequences of an inheritance: a family fight over the disposition of jointly inherited property such as an artwork or a family home. (Imagine if Downton Abbey had multiple owners.) “Anything that is jointly owned can present a real set of challenges, whether it’s a house, a piece of art or a jointly owned investment asset,” says Rieke. Who gets to use the home when? Who manages the property? Who decides when improvements are necessary and what they’ll be? Should the home be sold or rented? 

It’s not easy to balance the practical — say, maintaining a family manse when most of the younger generation has moved away and doesn’t use it much anymore — with the emotional. “Everyone remembers childhood events at a certain property and they might want to hold on to it or get rid of it for the wrong reason,” says Will Bonner, executive director of Bonner & Partners Family Office in Florida. Sibling fights over inherited real property, says one trusts and estates lawyer, “are often fights about who Mummy loved more,” as members of the next generation claim a special bond with the property or the parent. Inanimate objects become avatars for long-simmering psychological subtexts — sibling rivalries, jealousies, resentments, insecurities. That’s why some advisors urge parents planning to bequeath such items to sell or give them away instead, or at least to leave clear guidelines for their use. If they’re not binding, those instructions may wind up being disregarded, or they may spark fights of their own. But telling your children why you’re leaving them joint property is usually better than creating a vacuum for them to fill with hopes and fears.


It’s a classic story: A family’s patriarch or matriarch becomes a widower or widow and remarries someone the children deplore. Or the family’s elder couple divorces, and the same result follows. (Some advisors call this the “black widow” or “stepmom” phenomenon.) The children of the original couple have all the issues that any children would face with the addition of a stepparent to the family — the inevitable comparisons to the deceased or divorced parent, the challenge of forging a relationship with a stranger who’s now intimate with their father or mother — with high financial stakes added to the mix. How will the new spouse affect an inheritance? What happens when he or she starts butting into family affairs, particularly monetary ones? How do you trust that the spouse loves your parent, and not his or her for tune?

The situation grows even more complicated if the new spouse is younger than the matriarch or (more frequently) the patriarch — say, the age of the parent’s adult children. The greater the age gap between spouses, the greater the children’s suspicion. And what if he or she wants kids, potentially diluting the inheritance of the existing children and grandchildren? 

“There’s a tendency to want to keep second spouses at arm’s length and not involve them in family affairs,” says Bonner. “But you have to be conscious of the fact that these people may be the parents of future generations, that they are intimately involved with a member of the family and may be very influential. Everyone’s going to have to deal with them.” 


Closely related to the problem of the bad remarriage, the phenomenon of the unfortunate spouse occurs when an adult child marries or plans to marry someone the rest of the family doesn’t like, doesn’t trust and doesn’t want to be related to. It’s awkward, of course, but more than that, it’s a significant hurdle for family legal and financial planning. What if, for example, the parents want to conduct estate planning and initiate conversations involving all their adult children, but now feel constrained? Perhaps they fear the marriage with the unfortunate spouse will end in divorce, and any monies left to the relevant child will soon be reduced by 50 percent, as their stubborn child adamantly rejects the notion of a prenup. Or perhaps the reality of the unfortunate spouse has simply caused them to doubt their child’s judgment.

In their estate planning, or in the estate itself, they could single out the household with the unfortunate spouse for different treatment, diminishing the child’s role in family matters or creating special legal structures to anticipate the possibility of divorce. But that strategy has its own undesired consequences, such as the anger it’s sure to provoke in the child who married the unfortunate spouse; in trying to anticipate a problem, the parents could be creating new ones. Another common issue: What happens when the unfortunate spouse gets involved in the family business? Whether he or she is a disaster or a prodigy, problems can easily ensue. The unfortunate spouse may be a gifted executive who rises quickly through the family business — but then must be ousted when the marriage ends in divorce.


Not all children are created equal. Some are responsible, diligent, respectful and committed to their family. Some aren’t. Many families have one child who underperforms and distances himself from the rest of the family — except when he needs cash. Sometimes substance abuse is a problem, but more frequently, the child suffers from what Will Bonner calls a “dilution of human capital” — he just hasn’t turned out as well as the generation above him. (Sometimes because his parents were working so hard, they neglected him.)

Black sheep typically take more from the family coffers than they’ll ever return, and involving them in the family business is a mixed bag: While the parents who make a job for a troubled or disinterested kid may think they’re keeping him out of trouble, they’ve really just brought that trouble into the workplace.

It’s a painful situation without easy solutions; against their better judgment, and the near-universal recommendation of financial advisors, many parents accede to the black sheep’s demands for money, even though their giving creates as many problems as it solves. (No matter how much they give, it ’ll never be enough.) One wealth manager tells of a wealthy widow whose black sheep son repeatedly petitioned her for infusions of cash, which she provided. When her other children expressed their concern and resentment, the widow responded that the money would be deducted from the black sheep’s inheritance. “That’s what she says,” this wealth manager explains. But invariably, “she’ll leave that child an equal amount in her will because she can’t bear to ‘short-change’ him.” Which, of course, will only fuel more intra-family tension.

Sometimes the black sheep phenomenon isn’t limited to one child. While one sibling works hard in the family business and wants to reinvest in the firm, says this wealth manager, the others “are just a bunch of dilettantes who want more cash distributions, sucking out cash flow.” The dilettantes’ mantra? “Where’s my quarterly distribution check?”


The founders of a family business — typically a family’s wealth creators — must eventually cede control of that business. (Sometimes the handoff comes only upon their deaths, but still, it does come.) Many founders want to keep the business in the family, but finding the appropriate heir isn’t always easy. Sometimes the most gifted child doesn’t want anything to do with the business; sometimes the child who does want to take it over is business-challenged. And sometimes none of the children are either talented or interested in picking up the reins from their parents.

Alfred Peguero, a tax partner at PwC in San Francisco, remembers one such situation. “The father, an immigrant, had done really well in real estate, but the kids all wanted something different. They saw the father working late and traveling, and they didn’t want to take that on. They ended up selling the whole business, and now everyone just collects checks.” Bittersweet though that outcome may be, it was probably better than handing the business over to an incompetent or ambivalent child who would run it into the ground.

It’s tempting for parents to avoid choosing, and instead place the business in the hands of all their children. “The older the patriarch or matriarch gets,” says one wealth manager, “the more they want to split power up equally among the kids.” To which most advisors say: Don’t. One former client of this manager owned a construction firm and wanted to give one-third controlling power to each of his children. “He was mistaking control over a corporation with interpersonal equality among his children, to prove that he loved them all equally.” In the end, the father solved the problem by giving control of the business to his son, who had worked in it for many years, while ensuring that his two daughters, who had only dabbled in the firm, received substantial sums of money.


This challenge is similar to the transfer of the family business, but it’s broader; it’s really a question of who will lead the family when its strongest figure — usually a patriarch or matriarch, sometimes both — must abdicate the role. Wealth generators tend to be forceful personalities and dynamic leaders, and as the creators of both wealth and a family, they naturally head the management of both. But as they get older or struggle with illness, they must anoint a successor; while democracy might work in a country, it rarely does in a family. Someone has to guide the family and make decisions about matters such as investing, the family business and philanthropy. The power to make investment decisions “usually falls to the oldest sibling, but the oldest sibling isn’t always the most astute financially,” says one wealth advisor at Morgan Stanley Smith Barney. He describes a situation in which an elder matriarch with four children began to suffer from dementia, and signed over power of attorney to her two sons. Divided responsibility isn’t helping them make investment decisions. “The sons are trying to think what the family would want to do, but because everyone has a different opinion, they aren’t doing anything.” Many families, this advisor argues, would be better off having a neutral third party make investment decisions on their behalf.

Not all transfers of power are so tangible; often they’re about a child assuming the role of the family’s authority figure in more nuanced ways, as the person who steps in to resolve intra-family disputes or articulates a family mission. Other family members may resist such authority, but a parental endorsement at least establishes what the founders wanted.


What is the point of a prominent family other than to raise children and prolong itself? It’s not a trivial question; having a sense of purpose and identity can hold a family together in difficult times, inspire its youth, and infuse it with pride and commitment that can help its members lead successful lives.

For the first generation of a wealthy family, that raison d’être usually involves wealth building. With financial security achieved, the next generation may expand the family business while branching out into society and philanthropy. But what if one generation sells the business? The founder’s descendants now have more money than they know what to do with — but what is the family’s larger purpose? “Travel and golf go only so far,” says Bill Wyman, the CEO of Summitas, an information security firm targeted at high net worth families (see p. 34). “Do they start a new business? Do they focus on philanthropy? Are they more interested in creating wealth or preserving it?”

“If there’s a liquidity event, once the identity of the family is gone, they have to find something else fast,” says Will Bonner. “It could be just wealth management, but they need to find something and unify behind this new enterprise fast. Otherwise, they’re lost.”


Unlike Europe, the United States doesn’t have a long tradition of wealthy families who stay that way; most burn through their fortunes in three generations. One reason has to do with the American identity: Our culture praises individualism, entrepreneurship, youthful rebellion and geographic mobility, while promoting the idea of a classless society — all ideas that obscure the role of the family as a vehicle for wealth creation and preservation. We tend to idolize the self-made man (and, increasingly, woman), while generally sneering at those who merely inherit their wealth. Young Americans get the message: If they want to prove themselves, they have to break away from their family.

Given that cultural heritage, how can family leaders encourage their kids to subordinate self for the good of the family? “One way is to create a family history, a narrative of your ancestors that the descendants feel attached to, that defines them,” says Will Bonner. “If you’re going to be the founder of a multigenerational legacy, you’ve got to create a family brand” — something that makes family members feel that their individual identity is actually enhanced by being part of their family.


As you might expect, most of the wealth advisors interviewed for this article suggested that these problems can be resolved with the help of an outside expert such as a wealth advisor. But all of them stressed the importance of communication — of grandparents and parents talking to their children about the purpose of wealth and the importance of family.

Instead, all too often, “the parents really don’t talk to their kids about money,” says Rob Hauswirth, managing director of Oxford Financial Group in Chicago. “It’s not that they don’t want to, but they don’t want to have a negative impact on the kids being productive citizens,” and they’re afraid that if the children know they’re wealthy, they’ll stop working to better themselves and the world. The lack of communication usually backfires. “Mom and Dad work so hard to build a business, monetize their wealth, and the next generation often doesn’t have an appreciation for that,” Hauswirth says. Yet parents who actually delve into the subject with their children during, say, the kids’ teenage years might be surprised by the results. “The kids want to know,” Hauswirth says, “and they really should know in order to effectively manage wealth over time. They need to be trained and mentored and educated, and then ultimately step into the shoes of decision making.”


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