The third generation and family wealth

By the third generation, a family’s wealth no longer belongs to one family but to several: the assets are spread across many more hands, the cousins barely know one another, and the founder is someone almost nobody knew personally. What repeats at that point is not bad luck but a recognisable shape: dilution, decisions stalled by joint ownership, rules that were never written down and silences inherited along with the property. Ownership, title deeds and the family constitution are matters first for the notary, the lawyers and the tax adviser, who should be involved before anyone else. What no inventory records is the part each member of the family has to look at for themselves.

In this article

1. What the proverb leaves out
2. Why does family wealth thin out by the third generation?
3. Cousins who share assets but not a history
4. What happens when the founder becomes a legend?
5. Why do decisions stall when property is jointly owned?
6. The family constitution: where the notary comes in
7. Silences, sayings and old debts
8. Not everything is inherited
9. What can you do from your place in the family?
10. Frequently asked questions

What the proverb leaves out

In the north of England the saying is “clogs to clogs in three generations”. Americans say “shirtsleeves to shirtsleeves”, and Spanish, German and a good many other languages have their own version. Every one we know of points at the grandchild. It is a convenient explanation, because it puts the whole weight on one person and one generation.

What we have seen over decades is less comfortable. When something comes apart in the third generation, it almost never started there. The grandchild inherits a building that already had cracks in it: a division of assets nobody discussed openly, a handover the grandfather would not prepare, rules that worked only because he was alive to enforce them. What the proverb calls squandering is often, seen up close, a bill that arrives two generations late.

Nor is there usually a dramatic moment. Nobody decides one day that the family is splitting up. One year the lunch that used to bring everyone together quietly stops; the next, someone sends their lawyer instead of coming in person; the house in the country goes unrepaired because nobody knows whose turn it is to pay for the roof. Those inside such a family can rarely point to one event. They notice that something is loosening, and cannot tell whether saying so aloud would be prudence or disloyalty.

Why does family wealth thin out by the third generation?

The first reason is arithmetic, and it needs no figures. What the founder owned outright, the founder’s children owned in parts and the grandchildren own in fractions. Custom pushes towards dividing among all the children, and in much of continental Europe, Spain, Germany and Austria included, the law itself gives children a claim to part of an estate. What that means for a particular inheritance, especially one that crosses borders, is a question for your notary or lawyer.

The second dilution is less visible and weighs more: the dilution of meaning. For the founder, the company or the land was a life’s work. For the children it was an inheritance, and often a job and an obligation as well. For many of the grandchildren it is a dividend, a line on a tax return or the house where part of the summer is spent. Nobody is to blame for this. It is simply what happens when wealth reaches people who did not see it being built.

From this come interests that no longer match. The cousin who works in the business wants to reinvest; the cousin who lives abroad needs cash to buy a home of her own; the one who inherited a share without ever asking for it mainly wants to be left alone. Each is right from where they stand. The problem is not the difference of interests but a structure designed for a family that no longer exists.

The third dilution is of authority. In the first generation one person decided; in the second, siblings who had known each other all their lives, for better and for worse. By the third, nobody holds a majority, and every decision means gathering votes. Without anyone intending it, the family turns into a small parliament, with alliances, abstentions and votes negotiated on the telephone the evening before each meeting.

Cousins who share assets but not a history

Siblings grew up at the same table. They quarrelled, made up and know one another’s faults by heart. Cousins grew up in different houses, sometimes in different cities or countries, with parents who each told the family story in their own way.

Every branch, after all, has its own version. In one, the grandfather favoured the eldest son; in another, the eldest son carried the business while the rest lived off it. Both versions can be true at once, and they are almost never set side by side. Each grandchild inherits, along with a share, the account given by their father or mother, and defends it without quite knowing where it came from.

Cousins see one another at weddings and funerals. They know the names of each other’s children but not their worries. With so little contact, any disagreement is read with suspicion: what between siblings would have been an argument looks, between cousins, like a manoeuvre. And loyalty, which in the second generation ran to the family as a whole, moves in the third to one’s own branch.

In families spread across borders, the distance is literal too. Branches that grew up in different countries, languages and legal systems bring different ideas of what a family owes its members. A decision that seems obvious to one side can look unreasonable to the other, not out of bad faith but because each measures it against different habits.

Then there are those who married in: spouses who never knew the founder, do not share the history and, quite legitimately, look after the interests of their own household. They are not intruders; they belong to the family as it is today. But their presence makes visible something nobody says: the wealth no longer belongs to a group of people who grew up together, but to several families who share a surname.

What happens when the founder becomes a legend?

In many family businesses a portrait hangs in the main office. Whoever works beneath it almost never knew that person as an entrepreneur. At best they knew a grandfather or grandmother, and what remains is a handful of anecdotes, a few sayings and a reputation that grows cleaner by the year.

The myth erases whatever is awkward. It erases the founder’s doubts and mistakes, and the decisions never taken, often beginning with the question of who would take over. It erases the conflicts left open, too: the brother pushed aside, the business partner with whom things ended badly, the son who waited for a post that never came. What is left is a figure without flaws, and a figure without flaws cannot be argued with.

That figure becomes a silent arbiter. In meetings you hear “Grandfather would never have sold” or “He always said you don’t touch the land”. Each branch puts different words in his mouth and, since he can no longer contradict anyone, his authority can be enlisted for any position. Decisions are measured no longer by what makes sense today but by what he would have done in a world that has gone.

This, in our view, is the heart of what happens in the third generation. The people deciding never knew the person who built it. They inherit the consequences without having seen the causes, and they repeat without knowing that they are repeating. Loyalty to someone absent can be an enormous strength; it can also be a very dignified way of not deciding.

Why do decisions stall when property is jointly owned?

Joint ownership is where dilution becomes concrete. A house held in undivided shares by a whole generation of cousins, farmland nobody works, a shop let below market rent to a relative: assets that everybody owns and nobody quite manages. As long as nothing has to be decided, the arrangement holds. The day something has to be sold, renovated, mortgaged or simply paid for, everything stops.

Many decisions need everyone’s consent, or a majority that is hard to assemble, and a single refusal is often enough to stall a particular decision. The person with the smallest share can, in practice, hold the key to many decisions. Time does not help either: when one of the co-owners dies, their share usually passes to their own heirs, so the number of people who must agree grows while the willingness to do so shrinks.

Which majorities are needed for what, what each co-owner is entitled to ask for and what routes the law offers when there is no agreement are questions for your lawyer and your notary, and they belong at the start, before anything is raised within the family. Without that information, a family conversation soon becomes an exchange of assumptions, and between cousins assumptions sound very like accusations. Our own work runs alongside theirs, never in their place, as we explain when asked whether we work with lawyers and advisers.

A deadlock is seldom only about money. Whoever refuses to sell the family house may be defending a price, but also a place: the last spot where their branch felt part of the whole, the memory of certain summers, a recognition nobody ever gave them. Asking what each refusal is protecting, starting with your own, does not change the numbers. It can change the way you sit down to talk about them.

The family constitution: where the notary comes in

A family constitution, sometimes called a family charter or family protocol, is the document in which a business-owning family sets its own rules: who may work in the company and on what terms, how shares are passed on, what happens when someone wants to leave, how the next generation is prepared and what is done when a disagreement arises. Many families reach the third generation without ever having written one. While the founder was alive, the rule was the founder.

Drafting it is work for specialist lawyers, together with the family; the tax adviser examines its consequences, and the notary gives formal effect to whatever requires it. Who gives formal effect to what depends on the country: in Spain, Germany and Austria it is often a notary; in England, much of that work is done by solicitors. Which parts must go into the articles of association, wills or marital agreements to be truly binding is a technical decision for them. They should be involved before anyone else, us included; why we insist on that order is set out in our note Where the lawyer ends.

A constitution is better written in calm times than in the middle of a crisis. Drafted in the heat of a dispute, it tends to become a peace treaty between camps, and peace treaties are signed with reservations. One signed years ago and never reopened may describe, very precisely, a family that has since changed: rules designed for a set of siblings rarely suit their children unaltered.

What no constitution can write is the will to stay together. It can organise ownership, provide ways out and lay down procedures, and all of that is worth a great deal. But it rests on something that is not on its pages: that those who sign it genuinely want to share more than an estate. Where that will is missing, the best document becomes a set of house rules that everyone follows and nobody feels to be their own.

Silences, sayings and old debts

Every family that owns something has its silences. The uncle who sold his share and was never quite forgiven; the aunt who looked after the grandparents for years and received the same as everyone else; the loan between siblings that nobody repaid and nobody ever asked to have back; the son who was meant to run the company and ended up doing something else. None of it is mentioned at meetings, but everyone has it in mind when they vote.

Those silences are handed down like any other asset. Many families also have a saying that travels from one generation to the next: “money never lasts in this family”, “with us, partners always end the same way”, “nobody here gets to retire in peace”. A saying repeated across three generations no longer describes: it directs. It marks what is expected and what is feared. What passes down besides the wealth is a way of deciding.

Silence serves a purpose: it keeps the peace at family lunches. The price is that the arguments move elsewhere. People argue for hours about the roof of the house or a cousin’s salary when what is really at stake is who was loved more or who carried more. Until that is named, no agreement about the roof truly settles the matter.

It is also the part that falls within no professional’s brief: the notary authenticates what is signed, the lawyer defends a position and the adviser runs the numbers. Inside the family it is no easier, because any confidence can travel from one branch to another. What remains is a particular kind of solitude, having nobody to talk to about precisely what weighs most, which we describe in our note No one to talk to.

That is the territory in which we work: your own place in what passes from one generation to the next without appearing in any document. We do so alongside your notary and your lawyers, once they have done their part. It all begins with a conversation, by WhatsApp or telephone, in English with Tony Alcalá. We listen, assess whether our work makes sense in your situation and, if it does not, tell you so at once and explain why. If it does, scope, duration and fee are agreed before anything starts, as described under what happens before we accept a case.

Not everything is inherited

It is tempting here to see patterns where there are none. Much of what goes wrong in the third generation has ordinary explanations, and those explanations come first.

• A badly structured business sinks in any family. That is a matter of management and accounts, not inheritance.
• A sector that changes leaves behind whoever does not change with it. If the grandfather’s model has aged, that says something about the market, not about the family.
• A poorly prepared handover creates predictable conflict. That is a matter for the notary and the lawyers.
• Two similar events are two events. To speak of a pattern you need clear repetition and, above all, the same shape, not the same content.

The shape is what repeats when everything else changes: always at the moment of handover, always by some indirect route, always just as something was about to settle. If each generation stumbled at a similar point in life, or in a similar way, that coincidence deserves to be written down with dates. How to set out such a sequence in time, and how to tell it apart from a run of bad luck, is the subject of our note When a pattern repeats.

What can you do from your place in the family?

Nobody puts a whole family in order from one of its branches, and there is no need to try. What is within your reach is your own position, the only one that is genuinely up to you. It usually starts with four tasks, and none of them requires speaking to anyone in the family yet.

The first is to know exactly what you own, with whom and under what rules. Many members of the third generation have never read the deeds, the articles of association or the family constitution, if there is one. Ask your lawyer or notary to explain them in plain words: what is yours, which decisions need the others and what you can do on your own. Without that map, every family conversation is conducted blindfold.

The second is to write down the family story as you know it and note, beside each episode, who told it to you. Often much of what you take for granted reached you through a single voice, your father’s or your mother’s, and for some episodes you have no other version. The point is not to correct that account but to know which part of your position is your own and which part you inherited.

The third is to look for the phrase: the one that keeps coming back in the family and that you may have caught yourself saying. Write it down, then ask yourself who said it first and which of your own decisions it has shaped without your noticing. Finding it and recognising it is work that no document can do for you.

The fourth is to answer in writing what you yourself want: to stay in, to sell your share, to become more involved or to step back, and what you are prepared to give up in each case. Then separate, among your reasons, those that are yours from those that are loyalty to a story you did not choose. The three questions before deciding are useful for that examination, especially the last, which asks who benefits from your deciding quickly and separates your own calendar from other people’s.

None of this obliges you to decide this year. Wealth that took three generations to reach you can bear your taking the time to look at your part calmly. What is worth avoiding is deciding out of weariness, at the end of a long family lunch or on the way out of a meeting that went badly: those are usually the decisions the next generation inherits without understanding.

Frequently asked questions

Why is the third generation so difficult for a family business?

Because three changes coincide in that generation: ownership is spread across many more people, the cousins no longer share a common history and the founder is no longer there to arbitrate. Many families reach that point with no written rules, because for decades the rule was one person. Inherited silences weigh on every vote. The legal and tax side is a matter first for your lawyer, notary and tax adviser.

What is a family constitution and who drafts it?

It is the document in which a business-owning family sets out its rules: who may work in the company, how shares are passed on, what happens if someone wants to leave and how the next generation is prepared. Specialist lawyers draft it with the family; the tax adviser studies its consequences, and the notary or solicitor gives formal effect to whatever requires it in the articles, wills or marital agreements. When to draft or revisit it is a question for the lawyers who prepare it.

What should you do when heirs cannot agree?

First, ask your lawyer or notary to explain what the title documents say, which majorities are required and what routes exist if there is no agreement: that is their remit, and it comes before any family meeting. Next, separate the question of the assets from the unsettled accounts of the family’s history, which are almost always tangled up with it. Above all, set out your own position in writing before discussing anyone else’s.

How can I tell whether a pattern is repeating in my family?

Look at the shape, not the content. The events change from one generation to the next; what repeats, when anything does, is the manner: the same stage of life, the same kind of rupture, the same phrase said at the table. Before speaking of a pattern, rule out the ordinary: a badly structured business, a sector that changed, a handover nobody prepared. Two similar events are two events; you need clear repetition, written down with dates.

Who can I talk to about a family dispute over inherited wealth?

For anything to do with ownership, inheritance or tax, your lawyer, your notary and your tax adviser, and before anyone else. For the rest, someone outside the family who has no stake in the division and belongs to no branch. That is where we work, with you and on your own place in the family, alongside your professionals: we listen, we assess whether we can contribute anything and we tell you frankly. If we can, the fee is agreed before we begin, and only two people know about your case.

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