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| Best Practices |
Passing the Buck
Mary Lowengard
07/01/2004
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Assessing Acumen
Age is no measure of financial expertise, and many worry
about their children’s ability to manage the wealth they inherit. Those of us
wondering about our children’s financial skills can devise creative programs
that will test, in a constructive way, their competence.
 | | IT IS all about getting the right amounts to the right people at
the right time. |
One plan devised by
Denver-based wealth advisor Thomas Zanecchia of Wealth Management Consultants
was used by three families, each with three children in their 20s and 30s. Each
child was given a single endowment of $50,000—enough, he feels, to inspire but
not to be a disincentive. The children were free to do whatever they wanted with
the money. At the end of each year, the parents replaced, in cash, any money
that the children had invested in illiquid assets. At the end of five years, the
parents matched whatever was left of the original amount, including any
profits the child made.
“The idea is not only to think about short-term
returns, but also to contemplate a long-term horizon,” Zanecchia explains. “This
approach acknowledges individual choice and risk profiles, while at the same
time getting the child to be comfortable with money and the importance of
preserving wealth.” It may also lead to the cross-fertilization of ideas, both
good and bad, among siblings, fostering yet another level of dialogue about
money and its uses. Zanecchia does caution, however, that the plan can backfire:
in one family, the three sons teamed up to open a business that became so
successful that, at the end of the five-year period, the parents had a difficult
time finding the liquidity to make good on their promise.
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