Michael Farrell, a wealth manager to millionaires, believes there’s much more to inheritance than handing over money.
Farrell is managing director of a wealth management firm whose typical client is worth at least $10 million.
“We tend to work with a lot of first-generation wealth creators. They have a bit of a blue-collar mentality about their wealth, meaning they created it and they value that,” Farrell told Business Insider. They’re proud of their success and recognize both the opportunity and responsibility wealth brings, he says.
But when it comes to passing down money to future generations, Farrell says they often miss the most important step: talking about it.
“These are successful people who’ve put strategy in place their entire life and executed it. Then all of a sudden it gets to their money and they go, ‘Nope, they’ll just find out when I’m gone.’ And I go, really? Like, how’s that possible? Why would you want them to find out when you were gone? Wouldn’t you want them to know so that they understand?” Farrell told Business Insider.
He said a 2015 study revealed that nearly a third of parents who planned to pass down money did not communicate with their children about it. Only about 15% of heirs were kept informed of the plan and about half knew the basics, he says.
“I think the thing that people want to succeed in is transferring their values about wealth, not just transferring the wealth value,” Farrell says. In early conversations, the goal should be to communicate why they’re passing down the money, he says.
“One of the things that people have to do is they have to begin to talk with their kids about what wealth means to them. What do they want wealth to do for their family and how and when can they be a resource to each other to help establish their own values about money?” he says.
Farrell says it’s common for young people to feel burdened by wealth or ill-equipped to handle the responsibility. By talking about how best to use the money they’ll inherit one day, it helps create purpose.
“I think communication of intent is the cornerstone to a successful approach of getting your children ready, whether they’re going to inherit a gazillion dollars or whether they’re going to inherit a few dollars,” Farrell says.
“It’s in the communication of your intention and why you are passing dollars to them that is most fundamental and most important to them,” he continues. “And that’s the place where everybody at any wealth level can be successful.”