Family wealth is about more than money. It’s about aspirations, expectations, values, and legacies. It can be an emotional topic, bringing out the best in some and the worst in others. And when wealth transfers hands, discord and conflict can irrupt in even the closest of families.
An estimated $30 trillion will change hands over the next several decades as aging parents, inheritance, and spouses transfer their wealth to beneficiaries. Women are expected to see a large portion of these funds come their way. Yet, women are among the least prepared to take on this wealth. Only one in five women have a comprehensive wealth transfer plan in place (Wealth Transfer report).
Historically, beneficiaries of sudden wealth haven’t fared well. An estimated 70% of families lose their wealth by the second generation (Money Magazine). An estimated 90% of families squander their inheritance by the third generation due largely to poor financial decisions, addictions and family disputes.
You can get ahead of the issues with a wealth transfer plan that responsibly and objectively provides for the smooth transfer, preservation, and allocation of wealth. A wealth transfer plan differs from an estate plan in its point of view. While estate plans focus on naming the receiver, wealth transfer plans focus on preparing heirs to inherit. Discussions and actions are put into motion to help families, women and children frame up how financial decisions will be made after wealth transfers hands.
A well-thought out wealth transfer sets goals and plans for the use of money and takes into consideration the intentions and expectations of givers and receivers. It may address family members’ needs and, to the extent possible, communicates the values and priorities of family members.
Each plan should be customized to the recipients and reflect what beneficiaries care about most. Needs are unlikely to align perfectly within families so having a framework for making financial decisions can help ensure that funds are allocated thoughtfully and fairly among beneficiaries. This could include providing for large and expected expenses, managing property, and reducing tax exposure.
- Large and expected expenses. Consider factoring in any large and expected expenses into your wealth management plan, such as insurance and health care, to enable good decisions on how funds received will be divided. Annual long-term care insurance premiums and other healthcare costs may be a priority for older family members. Surviving spouses may prioritize the need for mortgage payments and continuing life insurance premiums.
- Property – Should inherited property, anything from the family home to income producing property or real estate investments, be held or sold? If held, how will they be managed, and by whom? If sold, what are the tax implications on the sale of the property?
- Reducing tax exposure. This includes discussing methods of transfer, including the use of trusts, charitable giving, and generational gifting strategies, which may top the list of both the giver and receiver. What are the philanthropic intentions of the giver, and how might those be honored after wealth transfers hands?
Navigating these important discussions and issues is at the heart of a wealth transfer plan. While family members are unlikely to be aligned on all priorities, having the conversation now with adult children and aging parents can give family members adequate time to set parameters for a smooth transfer.
Wealth transfer plans require input from various sources. We can help you make informed strategic and financial decisions. The toughest part is getting started. Join Women, Wealth & Wisdom or contact your Wambolt Advisor and we’ll show you how.
Follow Wambolt & Associates on LinkedIn
Photo by Kevin Delvecchio on Unsplash
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Wambolt & Associates employees providing such comments, and should not be regarded as a description of advisory services provided by Wambolt & Associates or performance returns of any Wambolt & Associates Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Wambolt & Associates manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Wambolt & Associates provides links for your convenience to websites produced by other providers or industry related material. Accessing websites through links directs you away from our website. Wambolt & Associates is not responsible for errors or omissions in the material on third party websites, and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from use of those websites.