At a recent reading of a will, the three daughters and one son of the deceased had a rather sharp shock: the son was to inherit the business, and the daughters would get nothing. None of them had any idea about their father’s plans. 

Rather than leading to an unpleasant family feud, the outcome was a happy one. The son approached his wealth adviser and said he wanted everything to be shared equally with his sisters, who readily agreed.

But advisers to some of the world’s richest families say that the only surprising thing about this story is that a son would inherit more than the daughters in this day and age — which is happening much less often in wealthy families across the world. 

What was commonplace, they added, was that the children only found out who was inheriting what after their father died. 

The thorny question of how to talk to children about the family wealth — and concerns over how they might be affected — is the number one worry for rich clients, far ahead of concerns about how to invest their portfolio or tax issues, advisers say. And despite knowing that they should probably get around to it, many wealthy people simply let it slide, storing up a surprise for their children when they die.

Often, the reason for avoiding the conversation is a worry that the children will be corrupted by knowing the wealth is there. Parents fear it might make them lazy, unwilling to work, or even drive them down a hedonistic path of drink and drugs. 

Yet failing to educate children about money could have the opposite effect when they do inherit. When asked what the worst that could happen really is, one was blunt in his answer: “Death,” says Oliver Gregson, head of JPMorgan Private Bank in London. Alcoholism, drugs, going “totally off the rails” are all examples — if extreme and unusual — that he has seen in his career when children are not properly prepared for the amount of money they are going to inherit. 

Another adviser gives an example of an entrepreneur who worries about how to pass his money to his children, whom he said had “proven to be very frivolous in the past”. 

“They spend the money like water as they don’t see any value in it. As someone who built up money themselves and came from nothing that’s a really challenging situation and there’s an element of regret they didn’t engage earlier,” the adviser says. “You think you’re helping someone by shuttering them but you’re doing the opposite.”

Helen Watson, co-head of Rothschild & Co Wealth Management, says clients are often nervous about saying too much about the wealth their children will inherit, fearing candour will stifle their ambition and “take away their reason to get out of bed in the morning”.

“However, if they are going to inherit significant wealth, it’s much better that the next generation is educated than not. Talking about inheritance sensibly is the first step in imparting the knowledge and providing the tools to deal with it responsibly.”

James Gladstone, head of wealth planning at Cazenove Capital, says some clients are keen to grasp the nettle in educating their children, while others prefer to avoid the issue entirely. “Wealth has a responsibility that involves engagement and action and some people don’t want that.

“With a family business, if you had a kid you wouldn’t just pick them up and drop them into the business with no preparation. It’s the same thing if they inherit: the chances of failure are pretty high [if they haven’t been prepared to inherit].”

The issue can also be cultural. British families tend to find it harder to talk about money than wealthy families in other countries, according to Lucy Birtwistle, a senior associate at multi-family office Stonehage Fleming. “The stiff upper lip is still in place,” she says.

For those ready and willing to talk to their kids about inheritance, there is no right age, advisers say. But most agree it should certainly be done at some point in early adulthood. Ms Birtwistle says that it should probably happen before any serious relationship is embarked upon, so that a pre-nup doesn’t come as a surprise — or be seen as disapproval of the child’s particular choice of partner. 

The basic concepts of looking after your money can be introduced to children as young as three, advisers say. JPMorgan Private Bank recently produced a detailed guide for its clients — who tend to need about £10m to bank with the institution — to help them talk to their offspring about their wealth. 

For children aged three to five, it recommends introducing a piggy bank and the concept of saving. Once the child is nine, a savings account should be opened and, by 12 years old, the child should be encouraged to save for a long-term goal such as a summer trip and encouraged to play stock market games to learn about investing. By 15, the child should be encouraged to save for university expenses, while by 19, topics such as philanthropy, family values and cyber security are appropriate, according to the guide. 

“Your children will learn [about your wealth] from friends or other people, whether you like it or not,” says Mr Gregson. “God forbid you’re hit by a bus tomorrow. How do you feel about your children inheriting £100m? Children are far more financially savvy online and digitally aware, and that requires a change of approach to how you educate and talk to them.”

At times the advice from JPMorgan is an eye-opening window into the lives of the truly wealthy. One “game” is to allow children to budget the family holiday. That can involve deciding whether to fly private jet, first class or economy, and whether to stay in a five-, four- or three-star hotel. 

The thought of a child knowing how much a private jet costs — or that the mode of transport even exists — could strike terror into some parents’ hearts. Others may be in their own wealth bubble, unaware of the message their lifestyle is sending their children. One adviser recounts a tale of a child whose parents had been worrying about how and when to tell him about the family wealth. Upon being informed of the situation, he said he had already “got the gist”, given that a private jet took him to boarding school each term.

In fact, the next generation is likely to be more financially savvy than their parents may realise — particularly in the digital age. At one family meeting, a 14-year-old had been able to research the family company accounts online and had a number of detailed questions about the balance sheet, Ms Birtwistle says. “It was amazing.” 

“The parents are often surprised at the level-headed response they get from the children — they’re often aware of the fact there’s money there anyway, especially if you’ve had a comfortable life,” points out Mr Gladstone. 

For those who are ready to have the conversation, creating a sense of family values can be key. This can include writing a family charter — which might give a brief history of how the wealth was acquired, what values that individual had for their family and the impact the wealth should have on their family and the community around them. 

Excerpts of family charters seen by the Financial Times include the statements: “Grandfather’s mantra was centred around honesty and integrity and a belief in helping those less fortunate”; “be cautious of those too interested in your financial affairs”; “be discreet”; and “judge others by their character and not by how much money they have”.

Mr Gladstone says family charters “give [children] a framework in which to operate rather than a completely blank sheet of paper. It doesn’t mean they can’t alter it as time goes on — they may well have different views to their parents — but generally it means that the money does last longer.” 

Starting the conversation should also include asking children whether they want the money, Mr Gladstone says. Some are fiercely independent and may not want their parents paying for their children’s school fees. 

Private banks and wealth managers often run investment days where children can come along too, where basic concepts of savings and investment and philanthropy are explained. 

At Rothschild & Co, wealth advisers are sometimes even present in family meetings where children are told about “their” trusts. “We can take the role of a ‘friendly’ uncle or aunt in these situations, helping adult children with spending plans, for example. This has the benefit of removing parents from difficult conversations, but giving both generations confidence,” says Ms Watson.

Some banks, such as Weatherbys, use younger advisers to talk to the younger generation. Roger Weatherby, chief executive, says children “feel intimidated by the prospect of talking with a much older person, and often they don’t want to speak at all. They’d rather receive information digitally and then call if they want further explanation.”

Another way of getting older children interested and involved with the family wealth is through charity, philanthropy or sustainable investment. Rennie Hoare, a partner at private bank C Hoare & Co, says that the most important tool for preparing and informing families about wealth is philanthropy. “Getting children involved in philanthropy teaches them to deal with advisers, understand their passions, and realise the responsibilities that their wealth brings,” he notes.

One thing advisers agree on is that most children, when told they are to inherit significant wealth, feel a weight of responsibility that can bring a lot of stress. “It may sound crazy, but I wouldn’t swap places with my clients,” says one. “My life is much simpler.”

Letter in response to this article:

No subject was taboo at our family dinner table / From Robert Graham, Westmount, QC, Canada

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