In the coming decade we will see a huge amount of wealth transfer to beneficiaries in what is being called the “greatest wealth transfer in history.” So, how can we ensure that second or third generations are prepared and able to handle the substantial task of managing such assets and liabilities? Below we’ve shared some things that have worked well for our clients in managing intergenerational wealth transfers beyond having robust estate plans in place.
Host an Annual Family Wealth Summit
Gather all family members set to inherit assets for an annual family meeting. Use graphics, like a family tree, to explain who created the wealth and how it has been passed down between generations. Talk openly about mistakes and failures that have occurred in addition to successes. Introduce a personal balance sheet listing assets and liabilities to show family members the breakdown of wealth that is going to be distributed. Lastly, allow each family members time to ask questions without judgement. For individuals just learning that they are potentially inheriting large amounts of wealth, there can be a lot of mixed emotions, from grief and anxiety to shock and excitement.
Talk Openly about Inheritance Plans
Clearly name trustees, executors, and beneficiaries so those named are aware of current plans and their responsibilities, prior to having to assume those responsibilities. It’s important to reinforce key family values and impress overall expectations and goals for inheritances. You may even explain the reasoning behind distributions and whether assets will be transferred upon a first spouse passing or if assets will only transfer upon both spouses’ passing.
Introduce Beneficiaries to Key Advisors
Now is the time to include your beneficiaries in initial conversations with the critical advisors in your life. This should include your estate attorney, tax preparer, financial planner, investment advisor, trustees, or other business advisors. Allow beneficiaries to listen in on conversations and over time allow them to ask questions. For some young beneficiaries, they may need time to feel comfortable interacting with advisors, who will be able to ensure a smooth transition and that goals and intentions are kept after a wealth transition event.
Ask Beneficiaries for Input
If philanthropic giving is a key family value, it’s important that you ask beneficiaries to research potential charities and propose charitable gifts during your lifetime to establish a culture of generosity. If active investment management is a key value, ask beneficiaries to research investment ideas and provide a space for debate on how assets should be invested or managed. Allowing beneficiaries input prior to assuming responsibilities of wealth gives you time to set expectations, foster good habits, and see if beneficiaries will be able to manage their inheritance sustainably.
Second Generation Estate Plans
Once the next generation inherits substantial assets, their financial planning and estate planning needs will become paramount. Encourage them to put together proper estate planning documents, such as a durable power of attorney, healthcare directive, and living will to start. When helping them set these up, talk about how the wealth will be passed along to future generations to encourage long-term planning and thinking.
Disclaimer: Information provided is for educational purposes only. Your advisor does not provide tax, legal, compliance or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions. Further, your advisor makes no warranties with regard to such information or a result obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.