Have you considered what is required to preserve generational wealth and your legacy? Or the impact an inheritance will have on family members in different stages of life after you are gone?
You may worry that children and grandchildren will lose motivation and work ethic after they inherit. Some beneficiaries may experience favoritism, or relationships could dissolve over trivial disputes. How can you ensure their inheritance contributes to generational wealth and is used to achieve a better future?
Your loved ones must be ready for this new responsibility. Ideally, an inheritance will improve their lives while ensuring its use follows your wishes and values. Their wealth is intended to support family initiatives and possibly extend to their communities. Below are my three tips to ensure your legacy is protected and you are prepared to preserve generational wealth.
1. Generational Priorities Vary
There are generational differences in the best way to live and interact. Millennials and Generation X have distinctly different priorities concerning environmental, social, and governance issues than older family members.
You may want to extend your principles and values regarding climate change, responsible use of resources, health, and safety, human rights, social supply chain, or the mission and management of a family business. There may be concerns about how children continue to manage their wealth without your wisdom and guidance. These are legitimate concerns faced during the most significant transfer of wealth in human history.
The baby boomer generation controls an enormous stockpile of money currently transferring to younger millennial and GenX family members. The Wall Street Journal reports that from 2018 to 2042, 70 trillion dollars will be redistributed, with some 61 trillion dollars going to family heirs in the United States. The remaining balance will wind up in philanthropic endeavors. This transfer of wealth reflects the outsized economic power of baby boomers, who have been driving the US economy for decades.
2. Start the Wealth Transfer Early
Wealth transfer doesn’t have to wait until you die. You can provide tools and resources to manage the assets and income you’ve gifted before or after your death. Many have already begun the gifting process. The IRS reports annual gifts have substantially increased, unleashing a torrent of economic activity. Such activities include purchasing homes, starting businesses, creating non-profit organizations to shelter wealth, and donations to charity.
3. Financial Education and Asset Protection are Key
Suppose you intend to improve the lives of younger family members and the economic activity in your community. In that case, you must understand that your wealth could be influenced by younger generations with lower levels of financial literacy. Many struggle with saving and spending habits. Rather than preserving and growing their inheritance for future philanthropic endeavors, these generations may spend it on leisure activities, travel, college debt, and health services.
An estate planning attorney understands the importance of preserving generational wealth and goes over various options, including trusts for asset protection and tax-free benefits to loved ones. Guardianships for minors and setting up revocable living trusts (RLTs) maintain and disperse certain asset types in different ways over time. These trusts can contain language instructing family members to set up new trusts for the next generations.
Something to Consider
Financial vehicles like 529 tax-advantaged college saving programs and custodial accounts for minors, such as UTMAs/UGMAs, are often used to provide for a child. However, sending checks to your family without instructions on how to handle the gift can create unintended problems. Trusts can restrict spending and wait to release funds until minors become adults before inheriting. Your estate plan can address situations where a child receives a scholarship but does not want to attend college. It can set expectations for children who are experiencing addictions. You can avoid many potential problems by talking to an estate planning attorney.
Your estate plan can deal with questions and concerns through multiple decades. Estate planning attorneys who address multigenerational wealth transfer issues will structure your legacy plan to meet changing needs. They must update your plan to account for significant life events like marriage, divorce, births, and deaths while modifying assets and beneficiaries as necessary. They are also aware of any legal changes that can impact future goals. Your family ideals and financial aspirations are unique. Consulting with an estate planning attorney answers complex questions regarding a successful strategy for a prosperous future. Please contact us today at 877-585-1885 to schedule a free consultation to discuss generational wealth transfer.
Thanks for reading.
Christopher E. Botti, Esq., Certified Specialist in Estate Planning, Trust and Probate Law