How to Prepare for Transgenerational Wealth Transfer

Cerulli Associates anticipates a migration of $68 trillion to the next generation over the next 20 years. There are a number of things both parents and children should do to prepare if they expect to be part of this historic transgenerational wealth transfer.

Steps for Parents

1.   Ensure Your Estate Plan Is Up To Date

Planning for what happens to your estate after you die should be an integral aspect of your overall financial management strategy that can:

• prevent unintended beneficiaries (including the government or a divorcing spouse)
• protect families with young children
• spare heirs a big tax bite
• provide assurance at a difficult time
• prevent family squabbles by outlining your wishes.

2.   Educate Your Children

A TIAA Institute survey finds only 11% of Millennials display a “high level of financial literacy” so starting to educate them early will help the younger generations develop confidence around wealth management and finances.

• For teens, teach basic financial principles including saving, spending, and budgeting towards financial goals
• For young adults, expand that conversation to include managing, investment, legal, retirement, tax, and their own estate considerations.

If you’re planning to leave your children a substantial legacy, strategize with them some good uses for the money but above all, be sure to share with your children the fact that they will one day receive an inheritance. If not, you run the risk of financial missteps, or “Sudden Wealth Syndrome” if they find themselves unexpectedly wealthy.

3.   Prioritize Your Will

Has it been a while since you updated your will? If not, it’s time to make the call to your advisor. You’re never too young to have a will, especially if you have children. Your will is a strategic way to reduce estate taxes and facilitate more efficient wealth transfers.

4.   Keep Your Documents & Files in Order

Organize your documents and store them in one location. Scan and create digital files so you’ve got hard and electronic copies. You’ll want to keep information like account statements, share certificates, business interest documents, life insurance, revolving accounts, loan/mortgage paperwork, wills, power of attorney, and beneficiary designations together.

Steps for Beneficiaries

If you’re on the receiving end of an inheritance or financial gift, take the time to develop a strategy for your windfall.

1.    Take Stock of Where You Are Now

Take inventory of your current investment and savings accounts, including 401(k) or 403(b) accounts or Roth IRAs. This will help you get all your ducks in a row so you can begin building on what you already have in place.

2.   Make Sure You Have A Good Team

Be sure you have a trusted team behind you to help you navigate this difficult time. An attorney can help you through the probate process and a CPA or tax professional can offer recommendations on how to reduce tax burdens. Of particular importance will be a financial advisor, who can not only help facilitate the transfer of wealth, but also help you plan for your and your family’s future. Choose an advisor who can demonstrate that they will always act in your best interest.

3.    Develop a Comprehensive Financial Plan

Creating a customized Financial Plan acts as a roadmap, or a master plan to help you achieve your financial goals. It takes a big picture look at your overall financial situation, including income, debts, savings and cash flow. It also considers insurance needed to protect assets, retirement and estate planning, long-term investment and tax strategies, which will be especially important after receiving an inheritance. Your financial advisor will be key to helping you stay on track to reach your goals.

Speak to Your TAG Trusted Advisor

Whether you’re preparing to transfer your wealth—or you’re the beneficiary of an inheritance—we encourage you to speak to a trusted financial advisor. At TAG, we guide our clients on Trust and Estate Planning, Transgenerational Wealth Planning™ and Financial Planning. Talk to your TAG financial advisor today to discuss possible tax-efficient strategies for transferring wealth to your heirs.