
When we think of wealth transfer, it’s commonly from parents to children.
But what about “horizontal” wealth transfers?
The “Great Wealth Transfer” is about the Baby Boomer generation retiring and passing their wealth to their children.
A “vertical” transfer goes down generational lines.
A “horizontal” transfer goes across generations.
These typically occur in divorce, or after death to the surviving spouse.
In most of these scenarios, the recipients are women – divorcees or widows.
They differ from vertical transfers in several ways:
- Divorce is often laden with conflict and other agendas, some of which can endure way after settlement
- Losing a spouse can be far more difficult than losing a parent – bereaved children usually return to their own families, while the bereaved spouse is left alone
- Wives are too often at a knowledge disadvantage in respect of family wealth
- They may need to build new relationships with advisors
Vertical transfers – done well – can be smooth and orderly.
The family can invest time and resources into planning.
There can be overlap as control passes from one generation to the next.
Horizontal transfers often feature a discontinuity.
Much of what used to be may not be relevant or helpful.
They may need a reset or a restart.
It took three acrimonious years for Jane’s* divorce to settle. She got the house, cash consideration for her share in the business, and a listed equities portfolio. The kids were 19 and 13, the younger one living with her.
She was emotionally spent. After settlement, she treated herself to a week at a health spa. But she couldn’t relax.
She had more money than she would ever need.
There was a trust established for the kids so they would also be looked after financially.
But a part of her was petrified as she had no idea what to do next.
Horizontal transfers can leave the recipient of wealth in a vulnerable position.
- What does the next stage of life look like?
- Who is looking out for them?
- Whom can they trust?
For Jane, it started with building a trusted team – a group who worked together with her (and each other) with a clear North Star: “what is best for Jane”. With that team, she articulated her goals and consciously designed the next stage of her life.
There was no urgency or time pressure.
With time, Jane found her groove and is living a life of her own creation. She sleeps well at night because she has the support infrastructure in place for herself and her children.
Dealing with a horizontal wealth transition has unique challenges and involves a lot more than the more common intergenerational wealth transition.
Things usually proceed at “the speed of trust” so building a trusted team to look after you is an essential first step.
Ensuring that your team understands the nuances and sensitivities of your situation is key to delivering a successful outcome.
* Name and some details have been changed
Conversation Starters:
To what extent can/should you prepare for family “discontinuities”?
If a horizontal wealth transfer is coming up, what will you need to stop, start and continue doing?
Further reading:
Neglected heirs: widows who take over the family finances
The downsides of the $4.9tn intergenerational wealth ‘tsunami’
Green on how Ellevest is changing the game for women and wealth