Intergenerational Wealth Transfer – Strategies For High-Net-Worth Families
Cerulli predicts that an enormous sum will transfer from Baby Boomers to their adult offspring in Generation X and Millennial families during a “Great Wealth Transfer”, including cash, stocks, bonds, real estate assets, etc.
Families experiencing this transition may find this process an invaluable opportunity to discuss and align values and goals, and create new family legacies. However, it requires thoughtful preparation and open dialogue.
Educate Your Heirs
Passing wealth on to future generations takes careful planning and preparation, with different levels of wealth comfort requiring different approaches for their role in family finances. While focusing on trust-building, open communication, and values alignment may help ensure successful intergenerational transfers, ultimately success can only come through successful planning and preparation.
Heirs must be well prepared to manage the complexity of their wealth after it is transferred, including tax implications, legal obstacles and potential dilution issues. A strong team of professionals can be an invaluable asset in making sure heirs are ready to assume their roles as trustees of an estate.
Transferring wealth is deeply tied to both family values and culture as well as money management, regardless of its size. Therefore, many progenitors prefer transferring their fortune slowly or gradually with minimal messaging or empowerment from them; oftentimes this decision stems from concerns that too much money being granted too quickly can result in entitlement behaviors among recipients.
Create a Will
When it comes to leaving wealth behind, a thorough plan is absolutely essential. Consider whom and how your assets will be left as part of this estate plan.
Legal wills are an excellent way of outlining your wishes, detailing all your assets and designating beneficiaries. In case any of your primary beneficiaries predecease you, additional ones (contingent) could step forward as beneficiaries instead.
Another solution to consider for passing on your wealth to the next generation is creating a trust. Trusts can help minimize estate and gift taxes as well as prevent probate by holding property in trust with trustees managing it on behalf of you.
If you are considering giving large gifts to adult children, it would be prudent to consult a financial professional first. They can assist in understanding how this decision will impact both your own finances and retirement savings as well as explain any tax implications of these gifts, and help devise a strategy to best transfer wealth among your descendants.
Create a Living Trust
As your children come of age and you prepare to leave them your wealth, transferring assets through a living trust is an excellent way to transfer assets without incurring additional costs such as writing a will and probating. This option can even be implemented during your lifetime!
Your trustee will oversee your assets and distribute them among your heirs, while incentive trusts provide distributions in cash or investments when your heirs achieve certain benchmarks such as earning good grades, contributing to their retirement savings plan, volunteering for charity work or starting their own business. This is an ideal way for teaching your kids about responsible stewardship of their inheritance.
Before making gifts of substantial sums of money or assets, it is wise to consult a professional financial planner in order to assess any possible tax consequences and consider estate planning strategies such as generation-skipping trusts – an estate plan strategy which allows for passing assets down through several generations younger than yourself.
Create a Financial Plan
Establishing a financial plan can help your family’s finances and lay out a roadmap toward your goals, but its success relies on being executed consistently and regularly monitored – for instance if your income fluctuates it’s essential that your savings goals remain affordable.
Establish a budget and automate savings to set aside money each pay period for savings, helping your family establish healthy savings habits and establish a separation between your disposable income and savings accounts.
Include larger-picture goals in your financial plan, such as paying off debt, buying a home or saving for college. Working together on these objectives is an ideal way for family bonding while meeting those goals.