It’s a common problem: When passed to the next generation, wealth evaporates instead of increasing. There are even proverbs across time and cultures reflecting this phenomenon:

The first generation builds the wealth, the second generation lives like gentlemen, and the third generation must start all over. (Chinese)

The grandfather buys, the son builds, the grandson sells, and his son begs. (Scottish)

Shirtsleeves to shirtsleeves in three generations. (American)

Are your children or heirs prepared to responsibly handle the money you plan to pass to them? What can you do to help ensure they don’t fritter away their inheritance, but instead use it wisely and build upon it?

Having worked with many high-net-worth clients over the years, we have seen many instances where parents don’t know how to convey to their children what they expect of them in terms of handling inheritances. In many cases, the topic of money is taboo; heirs don’t know how much they will inherit, where the money came from or how they can sustain and build upon it.

If you think it’s enough to talk to your offspring in general terms about personal values, assuming your children will understand that your values also apply to money, you’re wrong. In fact, there is no substitute for talking directly, bluntly and often with your children about your financial values. Let them know what they’ll receive, its source and any plans you have for ensuring the money is used wisely after you’re gone.

Read Chapter 78 of my book The Truth About Money, which explains the importance of frank family discussions that keep everyone informed about inheritances.

For example, do your children know where you keep your will? Do they know who the executor will be? Do all of them know how you plan to divide your assets?

Restricting assets to heirs is sometimes necessary — especially for children 18 and under — but remember that you can’t control your wealth from the grave. Your heirs will find ways to get around the best-laid restrictions. This is why conversation is essential: to help your heirs understand your values and desires. And, of course, rely on your financial advisor and estate attorney for guidance.