The subject of wealth transfer couldn’t be timelier. Between now and 2045, the U.S. will see multigenerational wealth transfers reach $84.4 trillion. Of that, $72.6 trillion in assets will go to heirs, and $11.9 trillion will be donated to charities, according to Cerulli Associates, a wealth management market intelligence firm. Transfers will average nearly $2 trillion annually for the next few years, then skyrocket to over $5 trillion by the early 2040s.

The tendency might be to think that most of that transfer will come from billionaires. However, more modest net-worth families have the same responsibility to be sure their children are adequately educated and prepared to handle their family’s wealth responsibly. They also need to be sure the transfer doesn’t tear the next generation apart. Here’s a potential scenario.

Wealth Transfer: Differences in Opinion

Each time Francine and Paul discuss estate planning, they stumble on the same topic: how they’ll divide their assets among their three adult children. Today’s conversation, as they sit in their estate planner’s comfortable office, is no different.

Emily, the eldest, thinks everything should be divided into equal shares, putting together ‘packages’ with similar values. John is the more competitive of the three and, not surprisingly, thinks the assets should be distributed based on merit. And Sarah, the family do-gooder, advocates for charitable causes.  

What they grapple with is how to satisfy each child’s perspective. Francine sighs, “All I know is that our legacy should somehow reflect our values. The rest we can sort out.” Paul nods, realizing that navigating their children’s diverse viewpoints will take not only financial planning but also delicate diplomacy to maintain harmony in the family’s future.

Parents often say they don’t want their children to know how much money they have. However, children undoubtedly know how their lives have been impacted by the family’s money – and that there is wealth to be inherited. So, an uncomfortable silence is doing your children a disservice, not schooling them about money or teaching them the correct values. As a result, they are more likely to start squabbling – or could be helplessly and hopelessly taken advantage of after you’re gone.

If families fall apart after inheriting and become estranged from one another, it’s often because of inheritance decisions that breed resentment because they were made out of context. Some typical causes can include:

      • favoring one child over another,
      • automatically naming the eldest child as the trustee for your estate,
      • specifying who gets which assets and heirlooms without getting the children’s input through discussions, or
      • making the child who runs the family business an equal shareholder with non-working brothers and sisters.

You have spent so much time and effort in your later-life planning to build and protect your nest egg. By not creating the best situation when transferring it to the next generation – and not preparing your heirs to receive it – the power of the gift can be diminished or tainted.

How to Prepare

Following is a list of steps you might want to take in preparation for – and when having – what may feel like ‘tough conversations’ about transferring your wealth to your children:

  • Initiate open, transparent and empathetic family communications about financial matters between you and family members. Encourage your family members to express their thoughts and concerns as you discuss values, expectations and goals regarding your wealth transfer.
  • Discuss preferences for philanthropy and charitable giving and determine if there are specific causes or organizations the family would like to support. You might explore the benefits of creating a family charitable foundation that involves participation by your children.
  • Explore the family legacy you want to leave behind by sharing personal values, stories and traditions. Consider how the family’s legacy can be preserved even further by being passed on to future generations.
  • Educate your heirs (if needed) by providing financial education in the form of financial literacy programs or workshops that will help them manage their inherited wealth responsibly. If it helps, start at the basics with discussions about the importance of budgeting, investing and long-term financial planning.
  • Plan for your health care and long-term care  – particularly its funding. Discuss your preferences with your heirs, including how these expenses will be funded and how that might impact the overall wealth transfer plan.
  • Understand the tax implications of wealth transfer for both you as the giver and for the recipients, working with tax professionals to develop tax-efficient strategies. Consider lifetime gifting, charitable giving and other ways of minimizing tax liabilities.
  • Discuss ‘equal versus fair’ distribution and clearly define your criteria for asset distribution. Criteria should consider factors such as financial needs, responsibilities and the individual circumstances of each heir.
  • Plan for the succession of any family businesses, clarifying the roles and responsibilities of family members involved in the business. Consider the best strategies for a smooth transition.
  • Seek professional guidance in the form of financial advisors, estate planning attorneys and tax professionals to ensure the wealth transfer plan aligns with legal and financial best practices.
  • Establish a comprehensive estate plan that includes wills, trusts and other legal documents that clearly outline how assets will be distributed and ensure a smooth transfer of assets to your heirs.
  • Address contingency planning for unexpected events that could impact the wealth transfer plan, such as divorce, bankruptcy or changes in family dynamics.
  • Regularly review and update the wealth plan to adapt to changing circumstances such as significant life events, changes in tax laws or shifts in financial goals.

Addressing the transfer of wealth to your heirs is a crucial aspect of retirement planning. At WH Cornerstone, as a result of helping many clients with their concerns about wealth transfer, we have found ways to facilitate the foundational conversations with family members that are crucial to a smooth transition. We can integrate the output of those conversations into your retirement plan within the context of what we call Curve Ball Life Planning™.

Our support of your transfer of wealth does not have to stop there. When someone passes – and during a time of need when the estate is being settled – we at WH Cornerstone can remain available to support your heirs in what is undoubtedly an unfamiliar topic and environment.

We have learned the three things that grieving families need most after a parent passes:

  • Guidance on the estate administration process itself, including curated task lists that guide heirs through the required administrative work,
  • Relieving much of the manual work needed during the estate administration process, and
  • Helping reduce the professional fees associated with the estate administration process.

Winding down all your affairs will be a long process and proper preparation matters. At a time when grieving should be a priority for your heirs, we can help minimize their burden in a way that honors those wishes we’ve become familiar with through your retirement and later-life planning process.

If you think we can help, schedule a call with us. We’re here for you and your loved ones.

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