70% of Family Wealth is Lost by the Second Generation – Here’s How to Stop it

Wealth is more than just numbers on a bank statement or stocks in a portfolio. It reflects years of hard work, sacrifice, and planning. For many affluent families, the goal is to pass on that wealth to future generations, providing security and opportunities for their loved ones. Yet, startling research shows that 70% of wealthy families lose their fortune by the second generation, and a staggering 90% by the third.
Why does this happen? More importantly, how can families protect and grow their wealth to ensure it benefits multiple generations? This entry explores the root causes of wealth erosion and offers practical strategies to preserve it, including estate planning and financial education. By taking proactive steps, families can defy the statistics and secure their legacy.
The numbers don’t lie
Data sheds light on the scale of wealth loss across generations, painting a sobering picture for high-net-worth families. A study by The Williams Group found that 70% of affluent families are unable to maintain their wealth past the second generation, with that figure climbing to 90% by the third generation.
These statistics highlight a consistent pattern of wealth erosion, often referred to as “shirtsleeves to shirtsleeves in three generations.” The phrase captures a universal challenge faced across cultures and continents, making it an issue that no family is immune to, regardless of how wealth is initially accumulated.
But this isn’t inevitable. With the right mechanisms in place, your family can be part of the 10% that breaks the cycle.
Why do families lose their wealth?
Wealth loss doesn’t occur overnight. It’s the result of various challenges that, if left unaddressed, can chip away at even the most robust fortunes. Below are some of the most common pitfalls that lead to financial erosion across generations.
1. Lack of Financial Literacy
Children or grandchildren may not possess the necessary knowledge to manage large sums effectively. Without clear guidance, inheritances can quickly be misspent or poorly invested. This gap is often compounded by the fact that wealth creators may not actively involve the next generation in financial discussions.
2. Poor Estate Planning
Without a clear estate planning strategy in place, families often face tax inefficiencies, legal disputes, and unforeseen complications. Complex international tax structures or unclear Wills can exacerbate these issues, leaving significant portions of wealth tied up or lost to taxes and fees.
3. Uncoordinated Investments
Families often fail to diversify or strategically manage their investments across generations. Risky choices, uninformed investment decisions, or failure to monitor market changes can significantly deplete wealth.
4. Lack of Communication and Purpose
Research suggests that 60% of wealth transfer failures are caused by a lack of communication among family members. Without a shared understanding of the family’s financial goals or values, conflicts can arise, leading to poor management and even legal battles.
Strategies to preserve wealth across generations
The good news? With the right strategy, proactive families can defy the odds. Here are some of the best practices for securing and growing wealth long-term.
1. Prioritise Financial Education
Open conversations about wealth, combined with targeted financial education, are crucial. Teach the next generation the fundamentals of budgeting, investing, and protecting wealth. Regular family meetings, workshops, or even enrolling in personal finance courses can go a long way in addressing financial literacy gaps.
Tip: Start small by involving your children or grandchildren in discussions about family expenses or charitable giving decisions.

2. Leverage Estate Planning
A well-thought-out estate plan is critical for avoiding unnecessary taxes and legal complications. Tools like trusts, Wills, and intergenerational transfer strategies can help ensure that a family’s fortune is protected and distributed according to their wishes.
At Soteria Trusts, we specialise in crafting bespoke estate planning solutions tailored to high-net-worth families. By leveraging double-taxation agreements and Capital Gains Tax-free rollups under our strategies, your wealth can remain intact and efficiently managed across borders.
3. Diversify Investments
Diversification mitigates risk and maximises opportunities for growing wealth. Relying too heavily on one sector or asset class can lead to vulnerabilities, especially during economic downturns. Work with experienced financial advisors to build a diversified portfolio of assets aligned with long-term goals.
4. Protect Against Family Dilution
Preserving family wealth requires more than just smart investments—it requires clear agreements to protect it from dilution. Events like divorces or disputes can fragment assets, putting long-term goals at risk. By establishing a shared vision and clear structures, such as trusts or legal safeguards, families can ensure that wealth remains intact and in tune with their collective objectives, whether it’s funding education, supporting philanthropy, or growing businesses. This not only protects assets but also fosters stronger family unity.
Real-life case studies
A Planned Legacy
The Smith family, based in Europe, had built their fortune in real estate over two generations. The founder worked with a dedicated estate planner to establish a revocable trust paired with regular family financial workshops. By educating their children about asset stewardship and clearly documenting their vision for future generations, the Smith family avoided the common pitfalls that lead to inheritance disputes. Today, the third generation continues to thrive and expand the family’s real estate portfolio.
A Cautionary Tale
The Parkers, on the other hand, failed to plan ahead. Despite amassing significant wealth in the e-commerce industry, the lack of a formal estate plan led to a long and costly probate process after the founder’s passing. Their heirs disagreed on asset division, and substantial taxation further diminished the inheritance. Within 15 years, most of their wealth had evaporated.
The bottom line
The statistics surrounding wealth erosion are sobering, but they don’t have to define your family’s future. With financial education, estate planning, and proactive strategies, high-net-worth families can preserve their wealth for generations to come.
At Soteria Trusts, we’re committed to empowering families with the tools they need to build lasting legacies. Through a range of international retirement plans families can enjoy tax-efficient growth, Capital Gains Tax-free rollups, and tailored estate planning solutions across multiple jurisdictions.
Take charge of your legacy today. Schedule your free estate planning review with one of our expert advisors and ensure your wealth benefits generations to come.