Creating generational wealth is often viewed from two perspectives – those who are ready to leave a legacy in retirement and beyond, and those who are being charged with being the stewards of their family’s wealth.
To begin the process of building a multigenerational family legacy, you must know what makes a family wealth transfer successful, as well as what can make it challenging.
The family wealth transfer process can be dynamic and complex. Therefore, complications may arise if goals of the family wealth transfer go unarticulated. Family wealth transfers are only successful if they’re built on a foundation of transparent communication and comprehensive management.
How Does Family Wealth Transfer Work?
There are three phases of a family wealth transfer process:
The first two phases of a family wealth transfer process are dynamic and complex. They require you to monitor family wealth strategies and techniques continuously in real-time.
The below will help you understand what you will want in a family wealth transfer plan. More importantly, it will define what needs to happen in all three phases of the process.
Intergenerational Wealth Statistics
Unfortunately, less than 5% of families in America are effective in transferring family wealth. This could be because approximately 50% of the families in America are not aware they need a family wealth transfer plan.
One way that families can solidify a multigenerational wealth strategy and a legacy plan is by working with a financial advice and estate planning team. Did you know that $3.1 trillion in intergenerational wealth was managed by registered investment companies in 2020? In general, families who partner with a team of financial and estate experts are more likely to successfully pass wealth onto their children and grandchildren, and leave a legacy they’re excited about.
Intergenerational Wealth Transfers That are Successful
There is a basic formula to having a successful and well-managed transfer of family wealth.
- Your family must be on the same page about your legacy goals, and how you want to make an impact. The goal of intergenerational wealth is to create a lasting legacy, and that means every generation needs to be bought in. Of course, some ideas may differ from generation to generation. But having one family member who doesn’t intend to pass on their wealth or to be a good steward of their inheritance can create a problem.
- The stewardship needs to include successive generations. These next generations will have cohesive and aligned wealth and investment priorities. From here, the cohesive process can then head off any potential conflict between family members. In other words, speaking with just your kids may not be enough. Having grandchildren or even great grandchildren in on conversations about building a legacy can help to ensure that you’re collaborating as a family to raise good stewards who are dedicated to making a difference in the lives of others and future generations.
What is The Best Way to Pass On Generational Wealth to Heirs?
It’s thought that by 2030, more than $15 trillion will transition from one generation to the next. That transition of generational wealth usually includes family members with divergent values.
It is these divergent values that lead to different financial objectives. Future generations often have different financial goals that lead to family fractures.
One of the keys to avoiding these family breakdowns is by being transparent.
Transparency in Generational Wealth Transfers: Getting Clear on Your Why
Being transparent with children and grandchildren, or any other heirs you may have, can help you to create collective goals — and get comfortable with the fact that goals may shift from generation to generation. For example, a cohesive family unit who are exceptional communicators and have a shared vision of positively impacting their local community can work together to ensure that their wealth is used accordingly over the years.
For you, that may have meant donating to local charities and shelters. For your children or grandchildren, it may mean supporting organizations who are reinvesting in your community, or buying into a land trust that protects state land. In this example, the “how” has shifted across generations, but the “why” has stayed the same.
How to Transfer Wealth in Four Strategic Steps
It all starts with finding a shared family vision that incorporates your wealth transfer objectives.
That means you have to determine whom you wish to receive a part of your wealth and assets. You also must determine when they will receive those assets.
The second step is sometimes the hardest, because you have to determine your liabilities. Identifying your assets is a more straightforward equation, but it doesn’t provide a full picture of your estate. You need to catalog and list all your secured debt, loans, unsecured debt, obligations, and more can be an intensive undertaking.
The third step is to collaborate with your estate planning attorney and your wealth investment team. This step entails finalizing documents such as your will, trust, power of attorney, and/or executor.
Your last step is to continue following up on wealth transfer plans as family events or circumstances change. It’s normal to need to make adjustments, so don’t be afraid to reach out to your attorney and financial advisor to tweak your legacy plan as you move through retirement.
When to Start The Discussion About The Family Trust
There may be nothing more important than creating a family trust that manages and protects family wealth assets. There are numerous advantages to discussing or beginning a family trust.
One of these most significant advantages is that they limit your estate tax exposure. By limiting your tax exposure, you are able to give your family more financial control in the event of a tragedy. Your financial control details exactly where, how, and when the terms initiate.
Legacy Planning and Intergenerational Wealth Transfers
Legacy planning is critical in helping to prevent losing assets. There are friendly intergenerational wealth transfers. Many of them get completed in a legacy planning process.
Over 60% of wealth transfers fail due to a lack of transparency and communication. Legacy planning provides you with appropriate steps, so your family doesn’t become part of this statistic. Legacy planning identifies what is important for you and your family.
Meaningful discussions will begin on how one will fund these shared objectives. You want to bridge relationships with different family generations. By building the bridge, your wealth transfer has the best chance at success.
How We Help Make Family Wealth Transfers Successful
Family is about providing a safe place today, so your future protects you and your loved ones. No family wealth transfer can be successful unless it incorporates transparency and communication. Having a third party financial advisor to help facilitate the process can help keep everyone on the same page, and minimize family arguments.
Mariaca Wealth Management, LLC has the highest degree of integrity and knowledge when it comes to multigenerational wealth management and legacy planning.