Teaching young heirs how to handle wealth

Your Money


How do you teach kids to manage millions of dollars in inherited wealth?

Run them through a rope obstacle course. Have them compete to get the best price on a new Honda. Ask them to play the role of a father persuading a future son-in-law to sign a prenuptial agreement.

And for $30,000 each, that's what you get from IFF Advisors, an Irvine, Calif., financial planning firm that runs a two-year series of weekend workshops for affluent, financially clueless young adults.

"This course is sort of like Extreme Financial Makeover, sort of like Survivor meets The Apprentice,'" said Victoria Collins, a certified financial planner who designed the program with Doug Freeman, chairman and founder of IFF.

The program, called "Praxis," started with eight students from an Orange County, Calif., family in 2003, and now five more families from across the nation are waiting for the second course to start next year, Collins said.

Orange County, home to an estimated 5,000 families with net worth above $5 million - excluding homes - has been fertile territory for IFF, whose average client is worth $50 million. That clientele is reaching a stage in life when their biggest concern is what the next generation will do with the family fortune.

"The 20-somethings, recipients of significant wealth, are the heart of the problem," Freeman said. "There's a scary tendency. They don't develop career opportunities. They don't need to get up and go to work."

A handful of groups offer similar programs, such as Wealthbridge Partnerships in Washington and the Institute for Private Investors in New York City.

The IFF program started in 2003 with Lloyd Klein of Anaheim, Calif., paying $240,000 for his eight grandchildren to enroll.

A Nebraska native and World War II pilot, Klein launched a construction company in 1954 that evolved into a real estate empire with commercial buildings and 2,500 apartments across Southern California.

The Kleins would not disclose the size of the family trust, but they run a separate, private foundation with an endowment estimated to be worth $18 million next year.

Lloyd Klein's four children often feuded over money.

"My brother and sisters and I didn't always get along," said Jim Klein, 50, who manages the family business. "None of them work and they get a sizable salary. They aren't always pleased with me."

The tensions passed to the third generation, who rarely saw each other growing up. While Jim Klein's daughter and son were brought into the family company, the other cousins went their own ways, joining the Air Force, opening a cabinet-making business, working in a motorcycle shop.

"My parents pushed us to get our own jobs," said Jim Klein's niece, Kelly Klein, 23, a community college student and office receptionist who lives with her parents in Norco, Calif. "My brothers and I work for a living."

Despite the tensions, Lloyd Klein dreamed that his grandchildren would some day work together. He died in January, at age 85, before they completed the course.

The cousins, who ranged in age from 19 to 32 when the course started, became reacquainted during six weekend seminars at hotels in California and Nevada.

"It helped us become closer," said Nicole Klein, 23, Jim's daughter. "We're the future. For us to work as a group, we needed to get to know each other."

The program is equal parts financial and family counseling. Classroom lessons are as simple as balancing a checkbook and as emotionally complex as prenuptial agreements.

The cousins ran through a series of rope obstacle courses to build a sense of team spirit.

"I'm afraid of heights and I was afraid I wasn't going to be able to do it," said Pamela Broede, 34, a step-cousin who lives in Springdale, Ark. "But I went ahead and did it and it helped us work together."

During a weekend in San Diego, the cousins honed their negotiating skills by competing to get the best price on a new Honda. A $1,500 gap separated the highest and lowest offer on the $21,000 car.

Later, they started a joint investment portfolio - using real family money.

Lee Hausner, a former psychologist for the Beverly Hills Unified School District, developed the "life skills" curriculum with lessons in negotiations, communications, anger management and goal setting. She sees patterns in wealthy families: A patriarch's "my way or the highway" style creates a dysfunctional second generation followed by a clueless third generation.

The program's ultimate goal is to overcome bad blood by forging a durable family financial structure through limited partnerships, boards of directors and outside advisers. The ideal is forming a "legacy family," like the Rockefellers, able to preserve wealth, contribute philanthropically and serve the public for generations.

John Gittelsohn writes for Knight Ridder/Tribune.

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