Four Tips to Keep Your Wealth Transfer on Track
Incorporating family legacy planning into your financial plan is crucial to ensure the next generation knows how to serve as good stewards of the family’s wealth.
The Great Wealth Transfer is under way, and an estimated $84 trillion will change hands in the U.S. by 2045 as wealth accumulated by the Silent Generation and Baby Boomers makes its way to the next generations, according to Cerulli Research Group.
Studies show that successful multigenerational wealth transfer is easier said than done. In fact, 90%of affluent families see their wealth dissipate by the third generation, according to a study by The Williams Group. With this in mind, it is imperative for investors to consider the proactive measures they can implement today to defy this trend.
When preparing for a multigenerational wealth transfer, there are three foundational steps to address:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- Collaborating with advisers to establish a sound financial plan.
- Partnering with attorneys to draft a comprehensive estate plan.
- Collecting and organizing crucial information — such as trust documents, account statements, etc. — all in one centralized location. There are resources available online to help families document their complete financial inventory.
While these initial steps are absolutely necessary, there is another component that is arguably even more important — family legacy planning. Often dubbed as the “softer side” of wealth management, it's an aspect that is sometimes overlooked, yet it may hold the key to long-term success. Surprisingly, the breakdown of wealth transfer is seldom due to inadequate financial planning or tax and legal complexities, according to The Heritage Institute and the book Entrusted by Andrew Howell and David York. Instead, the primary cause of unsuccessful outcomes lies in a lack of communication and trust.
We believe there is a burgeoning area in wealth management dedicated to family legacy planning. It is not surprising that with an aging population, an increasing number of financial professionals are opting to specialize in this field. We have identified four key strategies:
1. Openly communicating
Open and clear communication within the family is the cornerstone of a successful multigenerational wealth transfer. While this might seem basic, it is surprising how many families avoid these conversations.
Discussing your estate and financial plans with your loved ones helps align everyone's expectations and ensures they understand your intentions. Sharing the “why” of your estate is as important as the “what,” as this approach fosters trust, reduces the potential for disputes and empowers the next generation to be responsible stewards of the family's wealth.
2. Having regular family meetings
Family meetings serve as a crucial platform for open and constructive communication within the family. They provide a structured environment where family members can come together in a way that promotes transparency, alignment of goals and the nurturing of shared values.
A typical family meeting might include obvious topics — such as updates on the family’s estate plan and discussions about investment strategies — as well as unexpected topics like philanthropic goals, drafting a family mission statement, capturing family history and investment education for the rising generation.
It is also an opportunity for every family member to voice their thoughts, ask questions and contribute to the decision-making process. This structured approach ensures that everyone is on the same page and helps forge a unified path toward realizing the family's mission and preserving its legacy.
3. Creating a family mission statement
A mission statement is a short summary of what matters most to you as a family, the principles that guide you. Creating a mission statement together is a powerful way to reflect upon your values as a family and gives everyone a clear understanding of what you stand for and expect of each other.
Having a shared vision — a clear purpose, values and goals — provides a roadmap that lays out where you are headed as a family and how you will get there. It provides a clear framework and set of expectations to follow based upon your agreed-upon values and beliefs.
4. Building financial acumen
Financial education is crucial for the next generation. It empowers them with the knowledge and confidence to handle inherited wealth. This ensures they can make informed investment decisions and contribute to preserving and growing the family's assets, aligning with the family's values and goals.
With financial literacy, they are better prepared to navigate the complexities of wealth, ensuring a successful and responsible wealth transfer.
Putting it all together
Transferring wealth from one generation to the next can be challenging, but taking the time to help your family prepare for what’s ahead creates the best chance for success. Family legacy planning is an ongoing effort, not a one-time task. Embrace the journey, and with each step, you'll further solidify your family's financial legacy and discover the meaning of true “wealth” in a family.
Related Content
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Krysta Dos Santos, CFP, is Head of Financial Planning at GenTrust. Krysta works to understand each client’s financial situation and then designs a customized plan to help them attain those targets they wish to achieve. She has a holistic approach that takes into consideration a variety of wealth management topics such as estate planning, tax strategies, philanthropic giving, risk mitigation, cash flow management, education funding and family legacy planning.
-
What Is a Debt-to-Equity Ratio and How Can Investors Use It?
A debt-to-equity ratio is a way to measure how solid a company's financial position is. Here, we take a closer look at what it is and how investors can use it.
By Coryanne Hicks Published
-
Three Gen X Retirement Mistakes for Millennials, Gen Z to Avoid
Many Gen Xers haven’t prioritized saving for retirement and face a crisis as the first generation to retire without substantial support from pension plans.
By Tiffani Potesta Published
-
Three Gen X Retirement Mistakes for Millennials, Gen Z to Avoid
Many Gen Xers haven’t prioritized saving for retirement and face a crisis as the first generation to retire without substantial support from pension plans.
By Tiffani Potesta Published
-
Six Essential Retirement Strategies for Baby Boomers
Emergency funds, estate plans, different kinds of insurance and smart investing strategies are all parts of a strong retirement plan.
By Justin Stivers, Esq. Published
-
Why Has Your Car Insurance Gone Up? (And What You Can Do About It)
Inflation, technology and bad drivers have jacked up everybody’s insurance rates, but there are a few things you can do to possibly lower yours.
By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS Published
-
If You Have a Pension, Smart Tax Planning Should Start Now
Adding pension income to Social Security benefits and income from required minimum distributions could see you facing a tax torpedo and higher Medicare costs.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
Nearing Retirement With Student Loan Debt? What You Can Do
Many older adults will struggle with rising costs (health care and otherwise) and not enough savings. Here’s how they can manage lingering student debt.
By Patrick M. Simasko, J.D. Published
-
Risk in Retirement: What’s the Right Level for You?
Your situation and retirement goals call for an investment approach that takes into account your risk tolerance, risk comfort and capacity for risk.
By Scott Noble, CPA/PFS Published
-
The Earlier You Take Advantage of Your 401(k), the Better
The power of compound interest can turn modest contributions into big savings for retirement.
By Rich Guerrini Published
-
How Non-Traded REITs Could Give Your Roth IRA a Boost
In addition to increasing the diversity of your portfolio, adding a non-traded REIT within your Roth IRA allows the resulting dividends to grow tax-free.
By Edward E. Fernandez Published