Great Wealth Transfer: 3 Critical Mistakes to Avoid

The world is on the brink of the largest wealth transfer in history. Over the next 25 years, an estimated $74 trillion will pass from one generation to the next. This massive shift brings complex challenges for families aiming to preserve both assets and values.

Richard Orlando, founder of the advisory firm Legacy Capitals, specializes in guiding wealthy families through this transition. He identifies three critical errors that can derail succession plans. These mistakes range from avoiding financial discussions to failing to establish governance structures. Orlando argues that regardless of net worth—whether $2 million or $200 million—intentional preparation is the key to success. The following analysis explores these pitfalls and the strategies to overcome them.

The Great Wealth Transfer is accelerating, particularly among the ultra-wealthy. According to data from UBS, the volume of assets changing hands is unprecedented. This transfer is not just about numbers; it carries significant expectations for the recipients.

High-net-worth families are planning for a future where the next generation takes the helm. However, the transition is often fraught with emotional and logistical hurdles. The sheer size of the transfer—projected to reach $5.9 trillion from billionaires alone by 2040—necessitates a structured approach to inheritance and succession.

Many wealthy parents avoid discussing money with their children, fearing it will breed entitlement. However, Richard Orlando warns that this silence leaves heirs unprepared. When the estate plan finally speaks, often after a death, the sudden influx of wealth can be shocking.

Orlando compares this scenario to winning the lottery. To avoid this, he recommends a gradual move toward transparency. Families do not need to reveal every detail immediately, but they must start the conversation.

• Start educating children about wealth management early.
• Gradually increase transparency regarding assets.
• Prepare heirs for the responsibility of stewardship.

Orlando shared a specific case where parents planned to leave each child $100 million. The children, who had been supporting themselves, were unaware of their future fortunes. Orlando advised the parents to place $5 million in wealth management accounts in the children's names immediately. This allowed the heirs to develop skills and adjust to their future reality without a shock to the system.

A lack of formal planning is a major source of conflict. Orlando's work involves creating policies that govern family interactions, investments, and business ownership. Without these guidelines, families risk disputes over control and philanthropy.

If a family owns a business, there must be a clear conversation about who will take over control and ownership. Similarly, if a foundation exists, the family must agree on its goals. Divergent views can cause rifts; for example, a conservative grandparent may clash with a grandchild who wants to donate to organizations like Planned Parenthood.

To mitigate this, Orlando suggests finding common ground. Families should agree on a few key causes and incorporate them into a philanthropy mission statement. These guidelines help prevent future conflict by setting expectations early.

According to a UBS survey, 43% of billionaires hope their children will grow the family's assets. However, this expectation often leads to conflict when parents fail to relinquish control. Orlando points to billionaire clients with family businesses where the next generation was unprepared because the patriarch or matriarch refused to trust them with decisions.

The solution is to stop micromanaging. Leaders should gradually hand over the reins through low-risk projects. This approach allows children to voice their opinions and learn from mistakes without jeopardizing the entire enterprise.

Orlando describes this as a progression: "That way we can go from a voice to a vote." By stepping back, parents can foster the independence required to lead the family legacy successfully.