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Wealth Planning and the Over-Privileged Child

Posted on: July 1st, 2019

Affluenza. It’s a term that is being used more and more to describe the bad actions—sometimes horrific actions—of over-privileged children of affluent families.

Never mind that it’s not an official medical diagnosis. The label fits far too many kids today growing up surrounded by sizable family wealth and privilege.

If you’ve got one or more over-privileged children living under your roof, it may be time to take action—from trying to correct the behaviors and prevent them from recurring to arranging your wealth in ways that don’t add even more fuel to the “affluenza fire.”

Here are some of the best ways we’ve seen the Super Rich address the very real problem of over-privileged kids.

What does over-privileged look like?

Over-privileged children tend to act recklessly without considering the consequences. Often this leads to them hurting themselves and their families because of addiction or violence. In other cases, their actions ruin the lives of many—such as when one affluent Texas teen killed four people in a well-publicized drunk-driving accident.

We’re seeing a growing number of these children in recent years, driven in large part by the burgeoning number of extremely wealthy families. More rich and Super Rich families are being minted these days than at any time in history. Assuming the same percentage of children of the ultra-wealthy act out and there are considerably more such families, there will be a significant rise in the number of over-privileged children.

Some of these kids’ actions appear on social media. But most over-privileged children are living out of the limelight—where they indulge to excess. They regularly are in conflict with the law, requiring their families come to their rescue in one form or another.

Not surprisingly, they tend to be in their teens and 20s. When they are over the age of 30, they might lose the label of “over-privileged children”—even though their actions and attitudes haven’t changed a bit.

Other key demographic characteristics found among many of today’s over-privileged include:

  • They are the second generation or later scions of extremely wealthy families throughout the world.
  • Between hedonism and hard work, they always choose hedonism. In fact, many of them are seemingly striving to continually raise the bar on self-indulgent, pleasure-seeking behavior.
  • They have a strong sense of entitlement.
  • Many are narcissistic and tend to look down on those with less wealth.
  • They don’t believe society’s laws apply to them in the same way they apply to other people, in part because they have been in difficult legal situations from which their families have extricated them.
Who is to blame? The common argument that parents are entirely to blame for their over-privileged children does have some merit. Being given everything they ever wanted, being told they are wonderful and special, and having some—if not all—of their problems handled by their parents can create an environment fostering the creation of over-privileged children.  

However, this explanation alone is too simplistic. After all, many heirs to great fortunes grew up in such an environment but turned out to be diligent, responsible, industrious and caring individuals. While a person’s upbringing has a significant effect on his or her thinking and behavior, part of the problem of over-privilege lies with the person in question.

Addressing problems caused by over-privileged children

Dealing with the problems caused by an over-privileged child is often broadly conceptualized by behavioral professionals as a three-step process (see Exhibit 4):

Step 1: Crisis management. Immediate issues need to be addressed—especially if they present dangers to a child or others. For example, if the child was arrested, lawyers are required to arrange for bail or some other speedy solution. A public relations expert might even be required. If there is a way to readily address damages, that approach must be identified and evaluated.

Step 2(a): Situation problem management. This is an extension of the previous step. The situation has been somewhat defused and action is being taken to mitigate and fix the problems created by the over-privileged child. Often an expanded team of specialists is required. At the end of this step, the result is some form of resolution to the problems caused by the over-privileged child.

Step 2(b): Child problem management. Next, the family takes action to get their over-privileged child help, if needed. Some corrective action should also be taken so the situation does not repeat itself. For example, in the case of drug addiction, the child goes to a rehabilitation center. Sometimes, the families are able to adjust the financials—making it difficult or impossible for the over-privileged child to access funds when being destructive and harmful.

Step 3: From over-privileged child to responsible adult. A longer-term strategy should also be created and implemented to help over-privileged children become stable, well-functioning, capable adults. This is not to say that they will not make mistakes ever again. The aim is to help them avoid repeating the actions that caused them and their families significant problems. Part of the solution may be to control their access to family money until they are able to make financial (and other) decisions maturely.

Dealing with the problems caused by over-privileged children and pursuing ways to help them can be a complex process. Various experts can be needed throughout the process, and we see an expanding set of professionals these days who are focused on helping wealthy families deal with problems when they arise. These professionals include traditional resources—such as psychiatrists, psychologists and clinical social workers—as well as new family consultants, family business consultants and life coaches. 

Wealth management aspects

Wealthy families with over-privileged children need to make careful plans about their assets. Think about it: Leaving money to a child who suffers from a terrible drug addiction could be his or her death sentence.

From estate planning to asset protection planning, it is wise to understand the issues involved around wealth and over-privileged kids, and work to mitigate their ability to cause problems because of easy access to money.

There are a variety of wealth planning strategies that can be used to insulate the family and mitigate the impact of bad behavior.

One example: Using trusts that have built-in oversight of an over-privileged child’s inheritance is a common and relatively easy way to protect the child and other people. Such trusts might also help protect assets from creditors and others. Of course, the best way to use a trust will depend on the particular situation.

In certain situations, the wealth planning becomes more specialized. Where there is a family business and over-privileged children, for example, succession concerns and family wealth equalization can be argumentative topics. Families often need to think through the various approaches and become comfortable with the probable outcomes.

Warning: When it comes to expert wealth planning and over-privileged children, it’s not the actual wealth strategies and techniques that are most important. The most critical aspect to achieving the desired (and necessary) results is truly understanding what those results are, and effectively communicating the possible action steps.

That means if you work with a wealth management professional, he or she should be adept at uncovering your specific needs and goals and bringing the appropriate solutions to the table (either by themselves or via their relationships with expert specialists) and explaining the pros and cons of each approach.

Contact your legal or financial professional to explore this topic further.

Quiz: Is Your Child Over-Privileged?

To get a sense of whether your child may be over-privileged, answer this series of questions.

Round 1 questions

When your child wants to buy the latest and most expensive tech gadgets, do you ever say no?

Would you have a problem if your child took a year off from college to tour the world in style?

If your child wanted a high-end sports car for his/her 18th birthday, would you give him/her any real pushback on that request?

If you answered “no” to any of these questions, it’s extremely likely that your child is privileged—that is, he or she has certain advantages due to the considerable wealth of your family. Your child is in a position to do things, buy things and live a lifestyle with limited concern for cost.

That doesn’t mean your child is over-privileged, however.

Round 2 questions

Does your child consider himself/herself to be better than most other people because of your family’s social and financial standing?

Does your child need to and intend to ever work for money or for the good of others?

Does most everything revolve around your child and his/her intent on having a good time?

If your answers to these three questions are (respectively) yes, no and yes, your child might be something of a hedonist—and possibly not very nice to be around. That said, he or she may not necessarily be over-privileged.

Round 3 questions

Do your child’s actions cause significant problems for himself/herself, you and other family members, or other people (or all three)?

When your child does cause severe problems, do you always come to the rescue?

If you answered yes to both questions, it’s time to stop and reflect. If your family is wealthy and your child is selfishly hedonistic and your child acts in ways that hurt your life and the lives of your loved ones (and even strangers) and you swoop in to save your child from the consequences of his/her bad actions—your child is very likely over-privileged.

This report was prepared by, and is reprinted with permission from, VFO Inner Circle.  AES Nation, LLC is the creator and publisher of VFO Inner Circle reports.

Disclosure: The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.

Fusion Wealth Management is not affiliated with Kestra IS or Kestra AS. https://www.kestrafinancial.com/disclosures

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