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Are Your Children Wealth Creators, Stewards Or Consumers?

Ghysels Steve Bio Photo

By Steve Ghysels and Michael Ward

In the wealth-management business, it’s easy to become overly focused on transactional opportunities—maximizing investment returns, helping clients get loans and manage cash flow, consolidating assets for more efficient management. These opportunities are critically important both to affluent families and the wealth managers who advise them.

However, we recognize there is usually much more going on beneath the surface with wealthy families and much larger issues they are grappling with, especially if a first-generation wealth creator intends to transfer wealth to the next generation.

These issues are generally more complex, the conversations are more difficult, and the payoff is not always apparent. Accordingly, these issues are sometimes neglected or avoided by financial/wealth advisors.

In a December 2010 study from Boston College’s Center for Retirement Research, researchers estimated that Baby Boomers (individuals born between 1946 and 1964) will inherit $8.4 to $11.6 trillion. The greater wealth transfer, from Baby Boomers to Generations X and Y, is estimated to include more than $30 trillion of assets moving from one generation to the next over the coming 30 to 40 years.1

However, a well-cited study of 3,500 wealthy families found that in 70 percent of cases, wealth failed to transition successfully from one generation to the next2,  with families losing control of wealth it frequently took a lifetime to create.

Research indicates that most wealthy families fail in the endeavor of transferring wealth from one generation to the next not because they didn’t maximize every investment return or have the best estate plan; they fail because communication and trust fails in the family or because heirs were inadequately prepared to assume such high levels of wealth.

A new paradigm that is emerging is for wealth creators to prepare children to receive inheritances and to implement estate plans in the context of potential outcomes for their heirs.  Are your children Wealth Creators, Wealth Stewards or Wealth Consumers?

• Wealth Creators see wealth as “seed capital” that enables them to take advantage of opportunities to make more money. They are willing to take entrepreneurial and financial risks. Successful Wealth Creators understand this risk and do everything within their power to mitigate it.

Second-generation Wealth Creators have the ability to take a family business to a new level of success. They have an entrepreneurial spirit and may have voluntarily entered the family business or started their own business at a younger age as compared to siblings or similarly situated peers.

While growing up, Wealth Creators may have been included in discussions about the family business. Maintaining a higher standard of living may not be a priority.

• Wealth Stewards have less entrepreneurial inclinations and tend to have a lower tolerance for risk. They frequently have more formal education than their parents and may choose to enter legal, accounting, or medical professions.

Wealth Stewards live within their means, understand investing and the time value of money, and are not willing to invade principal to fund higher standards of living.

While growing up, they were frequently present when wealth was discussed by their parents. However, they may enter the family business only if required.

Wealth Stewards are charitably inclined and understand the impact of charitable giving on the family legacy.  Wealth Stewards are willing to educate their children regarding investing, legacy and family values.

• Wealth Consumers frequently have their own source of income, but utilize inherited wealth to enjoy higher standards of living.

In fact, they see the invasion of principal to fund and maintain a higher standard of living as a good use of an inheritance.

Wealth Consumers were not frequently involved in discussions of family wealth while growing up. If involved in the family business, they may see inclusion more as a birthright than something that should be earned.

Wealth Consumers sometimes have more formal education than parents.

With much being made of the current opportunity for high net-worth individuals to give away up to $5,120,000 tax-free before the end of the year, the stakes have never been higher for families to plan and prepare for major wealth transitions.

If you can clearly classify a child as a Wealth Creator, Wealth Steward or Wealth Consumer, you should consider using this information to customize your estate plan to appropriately encourage purposeful activity and responsible money management.

More importantly, you and your advisory team should begin to prepare your children to develop the skills and knowledge to manage family wealth based on their natural inclinations and tendencies.

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2 – Roy Williams and Vic Preisser, Preparing Heirs (San Francisco, Robert D. Reed Publishers, 2003)

Steve Ghysels is the regional managing director for Wells Fargo Private Bank in the Beverly Hills Region.

Michael Ward is the senior wealth planning strategist for Wells Fargo Private Bank in Beverly Hills.

To reach Steve or Michael, email or

Wells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries.

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