Seven ways to squander your family fortune
By Jennifer McPhee • Bankrate.com

Almost every culture has a version of the adage "shirtsleeves to shirtsleeves in three generations," which essentially means that the older generation works like crazy to amass wealth, but the family ends up with nothing after three generations.

Ever wondered exactly how these families manage to throw away their fortunes? Bankrate talked to the experts to find out and came up with seven ways to throw away your family fortune.

1. Believe having a will is enough
About two million family businesses in Canada are run by aging baby boomers, and most of these owners have no succession plan, says Thomas William Deans, author of "Every Family's Business." These owners often believe having a will that transfers ownership to their spouse is enough. Turns out it isn't.

In the vast majority of cases, spouses have no working knowledge of the business and ask the children to decide whether to keep or sell it. That's when all hell breaks loose. "You get all sorts of sibling rivalry," says Deans. "There's just a lot of family conflict, and that usually destroys the wealth."

2. Never communicate
Because many owners fear talking about succession, family members tend to make all kinds of fatal assumptions about what will happen. To solve this problem, Deans recommends convening a family meeting. First, family members should describe what they think the business will look like in five years. Family members will come up with different visions, which leads to a collaborative discussion about what the business really ought to look like, he says.

Next, the parent should tell the others whether he or she plans to sell the business, and ask the children whether they want to buy it. The answers to these key questions often come as a shock to both parents and children because they've never openly spoken about them.

Family meetings should take place at least once every quarter, says Judi Cunningham, executive director of the Business Families Centre at the University of British Columbia's Sauder School of Business. She instructs families to begin holding family meetings about minor family decisions when children are still very young. These meetings are really practice board meetings at which families learn how to communicate and make collaborative decisions. "By the time the children reach an age where they would be considering joining the business, they've already had a lot of the conversations, so there aren't any surprises," says Cunningham.

Through this process, families also need to establish clear policies, so that children entering the business realize they must work hard and take their jobs seriously. "Families might say, you need to have a minimum of an undergraduate degree in order to work in the business, or you need to have worked for three years outside of the business in a related industry," says Cunningham. "It's not just because you have the right last name that you get the job."

3. Gift the business
One of the quickest ways to destroy family wealth is to gift a family business to the next generation, says Deans. When gifting happens, successors feel an overwhelming obligation to run the business exactly how their predecessor did. "They almost run the business like a museum," says Deans. But when children purchase a family business for market value, they feel free to make critical changes, such as ditching an unprofitable product line that carries a parent's brand name.