4 steps to help ensure a smooth transfer of wealth to the next generation

By June 10th, 2023 No Comments
4 steps to help ensure a smooth transfer of wealth to the next generation

This article appears in Atlanta Business Chronicle.

“What’s my legacy?” Many adults have likely asked themselves this question at some point. It can be rewarding to know we’ve left some imprint on the people around us, so they can continue making a difference in the world when we’re gone.

Building multigenerational wealth can be a significant component in creating a lasting legacy, yet we rarely spend enough time ensuring a successful transfer of assets. Without advance planning, how can we be sure our assets will be managed well and our legacy will remain intact?

Fortunately, there are steps we can take to help ensure children and grandchildren are ready to handle the benefits and responsibilities related to inherited wealth. These steps may require work and time, but they can increase the likelihood your family’s wealth will remain intact through generations.

1. Keep everyone on the same page.

Your team of advisors might include an attorney, accountant/CPA, financial advisor, insurance agent, trustee, banker or other professionals. Their services typically intersect in some way, and each professional should be kept in the loop when you update or change your legacy plan.

For example, if you update trust documents with your attorney, you’ll need to circulate updated copies to everyone on your team. Or if you adopt new business-related arrangements — such as adding a buy-sell agreement — you’ll want to make sure those are distributed to everyone on the team, as well.

Likewise, you’ll want to communicate the updates to your family, letting them know the changes and why you’re making them. If you’re passing wealth while you’re alive, tell the recipient(s) if you wish to see the funds used for a specific purpose, such as paying off debts or investing in a 529 college savings plan. Ensuring everyone understands your wishes and rationale can reduce or even eliminate the chances of someone going against your desires later.

2. Don’t give too much, too early.

There is no one-size-fits-all approach to the “right” age for passing wealth; we all handle money differently, regardless of age. However, age and maturity often decrease the likelihood your beneficiaries will squander their inheritance. You could set up your funds for access by heirs when they reach specific ages, spreading out distributions instead of passing them all in one lump sum. For instance, you could set it up so a child or grandchild can access 25% of their assets every five years, starting at age 25.

You could also provide access to beneficiaries upon achieving a certain milestone or for specified purposes, such as the down payment for a first home or seed money for a new business. No matter how you structure distributions, we recommend spelling out the details in legal documents and distribute copies to all interested parties.

We’ve found the average starting age to receive assets is 30. Many individuals prefer to encourage their kids to start a career, work as if they don’t or won’t have an inheritance, and then get a nice windfall once they establish themselves independently.

3. Demonstrate good money management habits.

Starting good money management habits early can help your children and grandchildren become good stewards of family wealth. Teach children about financial basics, including the importance of saving, investing and managing credit.

Ask working adult children if they contribute to tax-deferred accounts, such as an IRA or 401(k). If they say no, find out what you can do to help them start saving. You might need to introduce them to your financial advisor or help them create a budget.

You can also include family members of all ages in discussions about which charitable causes to give to and how much to give. These conversations could happen during regularly scheduled family meetings, during which each family member — both young and old — has the opportunity to share a cause that’s important to them. These meetings are also a good time to reflect on the family’s values and reinforce the financial lessons you’ve taught over the years.

4. Talk it out.

Above all, keep the lines of communication open between you, your beneficiaries and your team of professionals. With open communication, you increase the likelihood of making sure your children and grandchildren become good stewards of your family’s wealth, leaving a legacy that can last through generations.

Although it can be difficult, we recommend detaching yourself emotionally from your money. Instead, we try to look at money as a tool that can be used to stimulate and motivate. At SignatureFD, we partner with clients to help them activate their wealth in four key areas: Grow, Protect, Give, and Live, so they can use their wealth to impact the things that matter most to them – a guiding principle we call Net Worthwhile (TM).

Some kids and grandkids won’t care much about making lots of money, and others will. Our goal is to help ensure your family relationships come first because we believe no amount of money is more important than the time spent with loved ones.

Are you interested in learning more about transferring your wealth? Contact us today.

SignatureFD is a financial advising firm headquartered in Atlanta, Georgia. We believe in helping our clients achieve wealth beyond money. Our team of investment, financial planning and tax experts are committed to proactively helping clients take control of their financial lives and achieve their goals.

Isabel Berbert is a partner and wealth advisor at SignatureFD. She helps entrepreneurs and small business owners gain clarity and make confident decisions through investment management, estate planning, tax planning and other areas of financial focus so they can concentrate on what they do best — running their businesses.

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