Avoiding Entitlement When Transferring Wealth - Doug Baumoel

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3 min readFeb 4, 2021
Photo by Morgan Housel on Unsplash
Photo by Morgan Housel on Unsplash

While it may seem that families of great wealth have less issues than the average family, the reality is that this is not true. Wealth seems to create its own issues. The sentiment ‘more money, more problems’ can definitely ring true for the majority of wealthy families. One of the great issues families of wealth face is over the transfer of wealth to the next generation. It is easy for young family members to feel entitled through the transfer of wealth, so Doug Baumoel created a specific framework that families can follow to avoid privileged attitudes. The way in which wealth is passed down will affect the recipients greatly.

“Wealth can, at times, feel more like a curse than a blessing. Wealth magnifies the impact of bad choices and presents dilemmas to those progenitors who must determine how to distribute their assets over their lifetimes and beyond. Perhaps the biggest fear among benefactors is transferring wealth in a way that engenders entitlement. Progenitors do not want affluence to crush the next-generation’s initiative, sense of purpose or self-esteem.

“They also want to ensure that those receiving some of their wealth do not confuse self-worth with net-worth. This can be easier said than done in a world that responds strongly to the material. But if progenitors can understand the issues at play and how choices regarding transfer of their wealth may impact the recipients of that wealth, they will be better able to achieve the benefits they want for their next-gens and avoid some of the pitfalls they fear.

“We have found that, when progenitors make informed decisions with intention, factoring in all the relevant issues at play, they are better able to avoid common pitfalls and increase the likelihood that their wealth transfer will be constructive, and not destructive, for future generations.”

“The degree to which wealth transfer is accompanied by intentional messaging has a tremendous impact on how it is received. How deeply does the progenitor consider and communicate the purpose of the transfer? Do they speak about the intended purpose of their wealth or how it should be used? Does the heir understand how the money was originally made or how much effort and sacrifice went into making it? Do they suggest that a transfer might be a test to determine how a child would use the money and how that assessment would impact what future gifts might be given?

“What would represent a high level of intentional messaging would be situations in which parents sit down with their children to speak about their intentions for providing the wealth, teach their children to understand and manage their wealth productively, and provide some guidelines and accountability. For example, for younger children parents may suggest approaches such as spending 1/3, saving/investing 1/3 and donating 1/3; or they may suggest that with money comes certain responsibilities. They might offer resources such as a wealth adviser, trustee or other trusted adviser to help the increasingly wealthy recipient make informed choices.

“A low level of messaging would be a situation in which heirs are simply informed that a transfer has been made or that now, upon reaching a certain age, they have access to a tranche of assets. Without appropriate messaging a child may not have an appropriate level of financial literacy, for example, and, like getting the keys to a car before learning how to drive, may be at risk of having a bad outcome.”

Read the original article and see the framework he created:

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