Are unprepared heirs a threat to family wealth?

Are unprepared heirs a threat to family wealth?

Planning for inheritance is not just a financial exercise but can be deeply personal for a family. Recent research undertaken by Nedbank Private Wealth highlights just how important effective communication and trust are in ensuring this transition happens smoothly, especially when younger generations are stepping into leadership roles in a family business.

Our study reveals that while 69% of young heirs aged 18-40 feel enthusiastic about stepping into leadership roles within the family business, many face significant hurdles. A third are worried about their lack of practical experience, while a quarter fear the financial pressure of these roles. Others feel apprehensive about operating under the shadow of a parent (22%), or cite stress (25%), fear of failure (26%), and even the toll they’ve seen the business take on their parents (33%).

Interestingly, despite Gen Z¹ heirs feeling ready to manage wealth, by the third generation, only 10% of family wealth typically remains intact². But what’s causing this erosion? It’s not just financial missteps, it’s often a breakdown in communication and a feeling among heirs that they’re not being heard.

How philanthropy can help bridge the gap

Philanthropy offers a unique opportunity to strengthen family bonds, foster trust, and prepare heirs for the responsibilities of wealth. Yet, our research findings show that 57% of millennials with wealth over £25 million report their families lack a philanthropy strategy despite the significant belief in the potential of philanthropy (78%)³ among younger generations.

Rebecca Cretney, our Senior Investment Specialist believes that there are several practical ways to enhance communication, foster trust, and better prepare heirs. “We must nurture the enthusiasm of younger generations by providing gradual hands-on experience to bridge the readiness gap, and the anxieties of older heirs must also be addressed.”

She suggests that philanthropy is a powerful way to do both.

“By establishing a philanthropic strategy, you can enhance financial literacy for younger generations, as they gain valuable experience in managing charitable assets. It also provides board or trustee experience, reinforces family values and a sense of responsibility, and strengthens family bonds through shared passion projects.”

Additionally, it promotes personal growth, develops leadership skills, and deepens understanding of societal issues. Ultimately, a philanthropic approach transforms wealth management into a multiplier of wealth, ensuring legacy continuity rather than diminishing it.

Simon Gibbons, our Executive Head of Wealth Management, reinforces this. He believes that philanthropy can serve as a powerful bridge between generations, creating a lasting impact not just on family wealth but also on the communities they care about.

“By integrating philanthropic initiatives into succession planning, we can equip heirs with the tools and confidence they need to navigate their future roles, ultimately strengthening their connection to family legacies and fostering meaningful relationships.”

We urge business owners in particular to tap into the enthusiasm of young heirs, providing them with hands-on business experience through philanthropic endeavours, or otherwise. This not only trains them and grows their skills but also creates a legacy that all family members can be proud of. By educating families about the opportunities and benefits of philanthropy, we can foster innovative thinking and strengthen family bonds, ensuring a win-win situation in increasing wealth while supporting causes that matter.

Adopting a proactive approach to wealth management

By fostering open communication, nurturing trust, and preparing heirs for the responsibilities ahead, families can overcome the historical trend of wealth erosion. Philanthropy is an impactful way to do so, giving heirs the opportunity to test, learn and build trust with parents, whilst growing wealth now and the future.

¹ ‘Gen Z’ refers to those aged 18-24
² HSBC Global Entrepreneurial Wealth Report 2023, UBS Billionaire Ambitions Report 2023
³ HSBC Global Entrepreneurial Wealth Report 2023, UBS Billionaire Ambitions Report 2023