Why heirs need to work Part 3: practical advice from wealth counselor Jim Grubman

My last post on this subject was about how growing up in an old-money family influences heirs’ choices about what they want to do with their lives. I wrote that second- or third-generation heirs grow up being taught how important it is not to overspend or squander the family’s fortune. This often leads to heavyhanded messages (particularly for sons) from the parents: “Shirtsleeves to shirtsleeves in three generations”—a longstanding belief and fear—is the bogeyman.

These heirs often feel the burden—learned from their parents, who learned it from their parents—of keeping the money in the family. From my own point of view, what matters most is not losing the fortune but finding meaning and purpose in life. And for most people, working is the best and most important way of finding a sense of purpose. Those heirs who have not been able to find a sense of meaning and purpose, and harness it to some form of work, suffer greatly. They often feel adrift and worthless.

Since I wrote the last post a new book by James Grubman, a wealth counselor, has come to my attention: Strangers in Paradise: How Families Adapt to Wealth Across Generations.
James Grubman, Ph.D. has worked for many years with wealthy families. His book is a distillation of what he has learned about how to help newly rich families deal with their wealth. This is called “new money”; it means that the newly rich have not inherited their wealth—they may have earned it, or they may have had extremely good luck in a variety of forms. For example, a man from a middle-class background starts an internet company that becomes very successful. In his 40s, he sells the business for tens or even hundreds of millions. He and his family (in this book Grubman talks almost exclusively in terms of families) have become what is referred to in the trade as “ultra-high net worth.”

Many of the families in Grubman’s book become extremely wealthy very fast—sometimes suddenly. It’s like winning a lottery. Seemingly overnight their lives are turned upside down. While they are very happy, they are also often disoriented and confused. “What do we do now? Do we buy all the luxuries we have always dreamed of? Or do we continue to live the same comfortable, but not wealthy, lifestyle? Do we continue to work or not?”

Part of the complex questions these families must deal with is how to transfer a portion of their wealth to their children and future generations. Needless to say, there are a variety of choices: estate planning is complex and tricky, and is best carried out when a wealth counselor is part of the process. Most important, how do newly wealthy parents transmit to their children the values that they themselves hold?

This is not easy. Their children are very susceptible to being infected by a sense of entitlement. They wonder, “Why should I work when my parents have so much money? Why can’t I do what I want?” Often, perhaps more often then not, they rebel against their parents’ attempts to teach them to be responsible adults, for whom learning a work ethic is important. These young people do not see the point of working when the family already has tens of millions or hundreds of millions of dollars. Can their parents say and do something to prevent this kind of rebellion? How can they encourage their children and be positive models? That answer remains unclear to me.

During the several years I and my collaborators in The Inheritance Project were interviewing young inheritors, we heard numerous stories about young heirs who did everything they could think of to sabotage their parents’ well-meaning plans for them. When this happens, there isn’t much parents can do, other than to cut their children off from their inheritance. But to do that doesn’t solve the problem; it only creates deep anger and resentment, as well as contributing to acting-out behaviors, addictions, and so on. Parents who take this route are in trouble.

This is just the beginning of a longer story, which I intend to continue as soon as I am able. There are ways to deal with these situations, and I will begin to explore some of them in the next post.

*Readers who want to purchase copies of Strangers in Paradise in bulk to give to their clients or to others (a minimum of 5 copies for a volume order) can contact Grubman via his website.