The Great Wealth Transfer: Why educating your heirs is more important than any foundation

In the next ten years, Switzerland will transfer the largest wealth in history to the next generation. But the statistics are relentless: around 70% of all wealthy families lose their wealth in the second generation, and 90% in the third. The problem is rarely a lack of legal structures or tax optimization. The real risk is the heirs' lack of preparation for the responsibility that comes with millions of dollars in assets.

An overview of the most important things:

• Governance instead of just structure: Legal constructs (holdings, trusts) protect money from the tax authorities, but not from the incompetence or disinterest of the heirs.
• Financial literacy as an inheritance: Teaching investment expertise and risk understanding is the most important form of capital protection.
• The family constitution: A binding set of rules for values, withdrawals and the participation of “NextGen” prevents inheritance disputes.
• Phased integration: Why the gradual transfer of decision-making power (e.g. junior deposits) is the best preparation.
• The asset manager as a mentor: An independent partner acts as a neutral authority between generations.

Breaking the “fate of three generations”

The saying goes: “The first builds up, the second receives, the third studies art history and consumes the rest.” Experts speak of the “Shirtsleeves to Shirtsleeves” phenomenon.

The reason for failure is usually not a bad portfolio, but a lack of common vision. While you have worked hard every franc as an asset builder, liquidity is often a matter of course for the next generation (NextGen). If there is no understanding of the mechanics of multiplication (compound interest, risk premiums, illiquidity premiums), the assets are downgraded to pure consumer goods.

The family constitution: The foundation for the legacy

Before you think about legal structures, as we describe them in detail in our guide [Securing Wealth Over Generations], you need a Family Constitution. This is not a legal document, but a set of moral and strategic rules.

A strong constitution clarifies issues such as:

• What does our money stand for? (entrepreneurship, philanthropy, security?)
• Who can dispose of how much and when? (Rules for withdrawals to start a business vs. lifestyle).
• How are conflicts resolved? (Establishment of a family council or advisory board).

By involving the heirs in drafting this Constitution, you create “buy-in.” Money is transformed from an abstract number to a common task.

Financial literacy: From heir to investor

Many heirs are already in their 40s or 50s at the time of the transfer of assets, but have never learned how to manage a portfolio. A independent asset manager Takes on the role of mentor here.

Gradual integration into practice

We recommend a procedural approach to introduce NextGen:

1. Internship at strategy meetings: Let the children attend meetings with the asset manager at an early stage — first as observers, later as questioners.
2. The junior portfolio: Transfer a partial amount (e.g. CHF 100,000 to 500,000) to the personal responsibility of the heirs. Here, they can make mistakes under guidance without jeopardizing their core assets.
3. Understanding tangible assets: Explain the logic behind illiquid investments such as real estate or private equity. In our article [Using inheritance correctly], we emphasize how important it is not to fall into blind activism after receiving it. The training ensures that this knowledge is already available before the inheritance.

The danger of the “lifestyle trap”

Prosperity can stifle self-motivation. The biggest fear of many entrepreneurs is leaving behind “rich but incompetent” children. The education of heirs must therefore also include the psychological component:

• Wealth as a tool, not as a goal: Capital should offer freedom for entrepreneurial or creative development, not finance laziness.
• Transparency: We often see that parents conceal the extent of their wealth. In the event of inheritance, this leads to shocks and wrong decisions. Controlled transparency is usually the better way.

The independent asset manager as a neutral authority

Conversations about money within the family are often emotionally laden. Here, the external advisor acts as a diplomat. It can ask unpleasant questions, impart expertise objectively and serve as a buffer for different risk perceptions between generations.

While a bank often just wants to sell products, an independent partner focuses on the durability of the structure. It ensures that the investment strategy remains stable even when control is transferred from one person to a community of heirs.

Conclusion: Education is the most important investment

Legal structures protect assets from external influences (taxes, liability). The education of heirs protects it from internal influences. Anyone who wants to master the “Great Wealth Transfer” must develop NextGen from a passive recipient to an active manager.

Independent asset management for generations

Accompanying families for decades requires more than just a good performance. It requires discretion, educational skill and a neutral perspective on complex family constellations.

Format Vermögen & Anlagen AG supports you at the locations Zurich, St. Gallen, Basel and Lucerne in the process of weatherproofing your legacy. We coordinate the transfer of knowledge to the next generation and ensure that your values and capital are passed on hand.

Prepare your succession professionally today.

→ Arrange yours now free, non-binding initial consultation for strategic planning for family wealth.