Shirtsleeves to shirtsleeves in three generations is a saying that refers to the all-too-common occurrence of families losing their wealth within a few generations. The first generation builds wealth through hard work and sacrifice, the next generation spends it, and by the third generation, there’s nothing left. When heirs aren’t prepared to receive their inheritance, this situation is a very real possibility. 

As a Calgary-based financial advisor and parent, I make daily decisions that ensure my children and grandchildren are ready for their inheritance and will manage the money responsibly. Why? Because estate planning is about more than the lawyers and tax accountants you hire. While, yes, they’re absolutely crucial, the reasons intergenerational wealth transfers fail is because of a lack of preparation of the heirs.  

In this installment in my generational wealth series of blog posts, I’ll be sharing what you can do to teach your heirs how to steward the family money to have a successful wealth transfer and avoid shirtsleeves to shirtsleeves in three generations. 

A Decision-Making Framework 

For over 22 years, I’ve been building financial plans focused on leading families through successful wealth transfers in Canada. And, as I’ve said before, I’m not just teaching others how to pass on generational wealth, I’m also doing it myself with my own children and grandchildren. 

How do you prepare your heirs to receive intergenerational wealth? I’ve created a decision-making framework called the Net Worth Thinking Lens, through which to look at your family’s entire net worth and figure out what you want to accomplish. The Net Worth Thinking Lens is comprised of four parts:

Focus Lens 

In the Focus Lens, I’m trying to determine what’s really important to you. What does money mean to you? What kind of wealth transition do you want? How much money do you want to leave your children? How much do you want to give to charity? What are your money values?

Function Lens

The next lens is the Function Lens. This is the part in the process where we analyze strategies and make decisions. 

Family Lens

When my team and I help our clients with estate planning and wealth transfer, we consider it a 100-year relationship. We don’t just focus on one generation in a family but multiple generations within families. By bringing everyone into the conversation and taking a long-term view of your net worth, we’re able to help you avoid a shirtsleeves-to-shirtsleeves situation and pass on intergenerational wealth in a way that works for you and your loved ones.

Freedom Lens

In this final lens, you’ll have financial confidence knowing that you’ve analyzed the strategies available to you, you’ve implemented what’s appropriate, you know your family’s stories and values, and you’re able to pass them on to children, grandchildren, nieces, nephews, or even by leaving money to charitable causes. 

While using my decision-making framework is a multi-step process, if you’re not quite there yet, a quick strategy is my peace of mind quiz, or as I’ve named it, “Will I Run Out of Money in Retirement? Quiz.” If you’d like to try it, it takes about two minutes and helps you get clarity on your money to see whether you’re taking some of the right steps. When you have clarity, you can convey your values and goals to your heirs. 

What’s Stopping You From Achieving a  Successful Intergenerational Wealth Transition?

If you haven’t started the estate planning process or you don’t feel confident in the plan you do have, what’s holding you back from a successful wealth transition? Are you:

  • feeling overworked, overstressed, too busy?
  • acting as a caregiver for children or elderly parents?
  • unsure of where to start?
  • feeling that your advisors don’t have your best interest at heart or they don’t have the knowledge to help you transition wealth?

All of these hurdles are valid and, believe it or not, surmountable with a solid plan and support in place. To illustrate this, I’ll be sharing the story of two of my clients; we’ll call them “Catherine” and “David.” They really highlight the fact that so many people get stuck, but you need to get unstuck to have a successful intergenerational wealth transition. 

Catherine and David’s Story

While I’ve changed the names of my clients, the story is true. Catherine and David have a blended family, just like my own family with my husband, Peter. At my Calgary-based wealth management firm this is extremely common, however, sometimes, creating strategies for passing on wealth is more difficult with blended families because there are so many sources of potential conflict. 

The Problem

In the case of Catherine and David, they accumulated most of their wealth together. Catherine came into the marriage with one child and David with two children. They were stuck and didn’t know where to start. Should they give each of the children ⅓ of the money? Should they split the money down the middle and leave 50% to David’s two children and 50% to Catherine’s child? Could they continue to give extensively to charity within their intergenerational wealth plan? 

The turning point for Catherine and David was when in a meeting, I told them that if they  made no decisions on their estate plan they were still, in fact, making a decision. They were letting the government decide who would get the money. In Canada, if you don’t have a will or estate plan, the provincial governments will use a formula for determining how your assets are divided. This was a moment of recognition for the couple. They knew they needed to do something. But what should they do? Where should they start? 

Applying Net Worth Thinking

I used my Net Worth Thinking Lens as the framework to help. We began with the Focus Lens and took a deep dive to figure out what their money values were and how much they wanted to give to the children. We talked about how much was too much and how much was not enough, as well as their charitable intentions. We also went through the three heirs and evaluated their financial readiness to receive the money. Talking about all of this gave Catherine and David the confidence that the strategies we were considering were appropriate for them and their family. 

The Solution

Ultimately, they decided that since they accumulated the wealth together as a couple, half was Catherine’s to do what she wanted with and the other half was David’s to do as he wished. Catherine would give 50% to her child and David would split his 50% between his two children. There really is no right answer. It’s all about you, your wealth, and your values. This was the correct choice for Catherine and David, and they felt an immense sense of relief at finally having an estate plan that reflected their values. 

Still, to avoid shirtsleeves to shirtsleeves in three generations, we had to prepare their heirs to eventually receive the money. I scheduled a multigenerational family meeting. Catherine and David, their three children, the spouses of the three children (some people find this controversial but I think transparency is crucial), and two of the older grandchildren attended. We talked about the 50-50 split so that everyone was informed and on the same page, while also discussing what Catherine and David still wanted to do with their money. I then worked with each of the children to help them become more financially savvy and good stewards of wealth. 

Mistakes to Avoid for a Successful Intergenerational Wealth Transfer

In addition to figuring out what’s holding you back from having a successful intergenerational wealth transition plan, you’ll also want to know the common mistakes that I’ve seen so many high-net-worth parents make, myself included, and avoid them. These are five of the biggest mistakes that can result in a shirtsleeves-to-shirtsleeves scenario:

1. Compromising your integrity

It’s not just what you say but your actions that will determine whether your children will learn and become financially confident adults who can differentiate between wants and needs, live a fulfilling life, and be responsible stewards of the family wealth, eventually passing it down to generations to come. 

I’m going to share a story of my own. We’ve always been a skiing family and we love taking ski trips, which was something we did frequently when my kids were younger. For anyone who has been on a ski trip with children, you know the costs can quickly add up, especially with my kids who always seemed to forget their helmets, their snowboards and skis, and warm clothing, and who were constantly hungry for high-priced resort food. 

On one particular trip, we had already been to the rental place and purchased skis, snowboards, and replacements for various forgotten items. By the time we got in line for lift tickets, I was feeling impatient and frustrated with how much lighter my wallet was. The person in front of us in line turned to his daughter and said, “Just pretend you’re 12 and we can get a lower price.”

My kids overheard this and my son, picking up on how I was feeling, turned to me and said, “It’s okay, mom. I’ll pretend I’m 12 too, and we can save money on my lift ticket.” Believe me, I spent the extra $10 to buy him the 13-year-old lift ticket. The experience really resonated with me and brought home the lesson that our actions speak louder than words. It’s a reminder not to sell my integrity for $10, $100, $100,000, or even $1 million. Passing on your values is so important for preparing your heirs. 

Maybe this story doesn’t apply to you but think about your own life. Are there any ways you’re compromising your integrity? Is there anywhere you’re feeling a little uncomfortable? If so, children are perceptive. Determining what you stand for and what’s important to you, and letting your children see you stick by it, will teach them money values. 

2. Being generous to a fault

Many parents I work with worry about their children or grandchildren having a sense of entitlement. I had a client, let’s call him “Jerry.” He was a tech entrepreneur and a very wealthy individual. All his life he’d been gifting to his children on an extremely generous level. Jerry had been so generous with his children, who were now in their 30s and 40s, that he bought them all houses, was paying their property taxes and utility bills, and sending the grandchildren to private schools. He started worrying that his own retirement may be at risk.

Just as I did with Catherine and David, I took Jerry through the Net Worth Thinking Lens. We looked closely at what was important to him and whether or not his children were good stewards of the family wealth and/or whether they could be in the future. After holding a big family meeting, I discovered that his children did feel a strong sense of entitlement. It didn’t matter to them that their dad was running out of money. 

I love to give gifts to my children and I’m not saying Jerry should have never given his children anything. However, kids need to learn the difference between needs and wants. Being overly generous with your children isn’t doing them any favors. In my own life, when I find myself being overly generous with my children, I have to check myself and remember that in doing this, I’m not preparing them to be good stewards of wealth. 

That said, lots of parents give, and it can be perfectly fine. I’ve paid for undergraduate degrees and helped out financially with my children’s weddings, but it’s detrimental if you’re being overgenerous to a fault. What’s considered overgenerous? Only you can decide that in your own life and with your own children and then set the appropriate financial boundaries

3. Isolating your children from reality

I went deeper into this point in my post on how high-net-worth parents can use philanthropy to teach their children about money. I find that philanthropy is a powerful teaching tool because you’re not isolating your children from the community, but, instead, immersing them into the community needs. This gives them a better sense of the world, what it means to have money, and how they can use their wealth to uphold their own values and those of the family.

4. Keeping the family wealth a secret

Some parents keep the family intergenerational wealth a secret from their children. This won’t last. Kids already have some idea, whether you think they do or not, that the family is wealthy. They live in a nice neighbourhood, take expensive vacations, and have things their friends or classmates don’t. This only leads to confusion, feelings of shame around money, and a lack of understanding. Being transparent and teaching kids how to manage money will be much more effective. 

5. Keeping up with the neighbours

Keeping up with the neighbours is another common mistake parents make that can lead to shirtsleeves to shirtsleeves in three generations. It can cause people to overspend and not make appropriate financial decisions. Your children and grandchildren will see you spending money in a way that’s not in line with your values. It can even cause them to think that outspending and having things that are bigger, better, and more expensive than the neighbours is important, which will create a sense of entitlement. 

Keys to a Successful Intergenerational Wealth Transition

Now that you know what not to do, what about what you should do when passing on generational wealth to ward off a shirtsleeves-to-shirtsleeves scenario? Successful intergenerational wealth transitions start with:

Knowing and living your values

Before you can pass your values – both general life values and money values – on to your children and grandchildren, you need to have a firm grasp on what they are. Spend time thinking about what’s important to you, honing in on your family’s story and values, and then living by those values yourself. 

Sharing and communicating those values

Once you know your values, clearly communicate them to your children and grandchildren. This can be done in a family meeting or in the smaller teaching moments that present themselves. For example, I shared my values the day on the ski lift when my kids knew I wouldn’t compromise my integrity and we talked about why it was wrong to lie to save money. As parents, we’re teaching our kids all sorts of values and money values are a facet of that. 

Realizing that not having an estate plan is having an estate plan

Going back to Catherine and David’s story, the impetus for them to begin estate planning in earnest was knowing that if they didn’t take the reins and work on a successful wealth transition, the government would do it for them. It’s your wealth and your family. Getting clarity, being proactive, and implementing the right strategies will set you and your heirs up for success.

Knowing equal and fair may not be the same

Some parents in Catherine and David’s situation would have given each child ⅓ of the wealth. After all, that’s equal, considering Catherine had one child and David had two. Yet, for them personally, they thought it was fair to divide the family wealth through the bloodlines. 

Parents struggle with this even if they’re not a blended family when they have kids with different careers and different lifetime earnings. An estate plan needs to be tailored to your unique needs and family dynamics. Being transparent about your plan will ensure there are no hard feelings and create a sense of goodwill and a desire to maintain and continue to pass on the generational wealth in the future. 

Understanding the consequences of gifting

Jerry’s story about gifting so much to his children that they had a strong sense of entitlement and felt as if they deserved his money even if it jeopardized his retirement, is an extreme one. Yet, even people who don’t go as far as Jerry may still find themselves being overly generous, which prevents your kids from learning to make their own way and manage money. Knowing the consequences can help you temper your urge to gift in a way that won’t help your heirs. 

Having money conversations

I touched on this in point #2, but talking about money is the foundation for raising responsible heirs who will maintain the family wealth. These conversations can be planned and led by a facilitator like myself or happen in the teachable moments that occur every day. It’s all about transparency. 

Let’s Connect

As you can see, a successful wealth transition and avoiding shirtsleeves to shirtsleeves is about more than hiring the best accountants and lawyers; it’s about preparing your heirs to receive the money and be good stewards of wealth. 

If you’re ready to talk about your own generational wealth plan and view your finances through a Net Worth Thinking Lens, contact me today to get started. Or, if you’d rather take a smaller step, take my retirement quiz to get a better understanding of where you stand now and how you can move forward. 

Susan O’Brien

Susan O’Brien

After years in the tax world working at both the Canada Revenue Agency and in the private sector, Susan O’Brien took a leap and started her own tax-consulting firm. While her business was successful, she had a gnawing feeling that she wanted more. Finding her heart was in wealth management, she started her next venture, the Susan O’Brien Group, with a large global Canadian bank in 1998. It has grown to become a nationally recognized wealth advisory practice.