Multi-generational Family

Transferring Wealth to the Next Generation:
Key Considerations for Families

1. Define, Communicate, and Document Goals

Ultimately, the estate planning process begins with you. Many find themselves unsure of where to start the process before contacting an attorney. Drafting a “Mission Statement” for your estate plan can help guide not only the way you think about your estate planning goals, but can also be a useful tool when it comes time to communicate your wishes.

Every family's situation is unique, and the transfer of wealth must align with their goals and values. Some common objectives included in family mission statements include providing financial security, encouraging responsibility, and preserving a legacy.

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2. Assessing Financial Literacy

Wealth transfer is most successful when heirs are prepared to manage their inheritance. Families should evaluate the financial literacy of the next generation and consider providing education on topics such as budgeting and saving, investing, estate planning and taxes.

Creating a foundation of financial knowledge ensures that heirs are equipped to preserve and grow their inheritance responsibly.

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3. Considering Legal and Estate Issues

Proper estate planning is critical to minimizing tax liabilities, protecting assets, and ensuring that wealth is distributed according to the family’s wishes. Common tools include wills, revocable trusts, irrevocable trusts, generation skipping trusts, healthcare directives and powers of attorney.

Families should consult with estate planning attorneys to tailor these tools to their specific needs.

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4. Address Tax Implications

Wealth transfer can trigger significant tax obligations. This can be mitigated in a variety of ways such as gifting assets during your lifetime, charitable gifts, using a valuation discount on a closely held asset such as a family-owned business or property, and using a number of estate planning techniques such as having a qualified personal residency trust (QPRT) drafted.

Working with your wealth team as well as estate and tax professionals can help families understand and navigate the tax landscape effectively.

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5. Protect Privacy and Prevent Legal Challenges

Privacy concerns and the potential for legal disputes can complicate wealth transfers. To mitigate these risks:

• Use Trusts: Trusts often avoid probate, keeping the details of the estate private.
• Create Clear Legal Documents: Ambiguities in wills or trusts can lead to litigation. Ensure documents are precise and up-to-date.
• Include No-Contest Clauses: Discourage disputes by including provisions that penalize beneficiaries who challenge the estate plan.

Proactive measures can prevent unwanted publicity and familial discord.

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6. Plan for Unique Assets

Certain assets, such as family businesses, real estate, or heirlooms, require special consideration:

• Family Businesses: Succession planning is critical. Identify and train successors, consider buy-sell agreements, and evaluate the role of non-participating family members.
• Real Estate: Decide whether properties will be retained, sold, or distributed among heirs. Consider co-ownership agreements to manage shared properties.
• Personal Property and Heirlooms: Clearly specify who will inherit sentimental items to avoid conflicts.

Documenting the family’s intentions for these unique assets ensures they are handled appropriately.

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7. Address Changing Circumstances

Life is unpredictable, and wealth transfer plans (and their corresponding documents) must be flexible enough to accommodate changing circumstances, such as:

• Marriage, divorce, or remarriage
• Birth or adoption of children
• Financial needs or disabilities of heirs
• Changes in tax laws or economic conditions

Regularly reviewing and updating estate plans ensures they remain relevant and effective.

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8. Incorporate Philanthropic Goals

For families with a strong tradition of giving, philanthropy can play an integral role in wealth transfer:

• Establishing Charitable Trusts or Foundations: Create a lasting legacy of giving.
• Involving Heirs in Philanthropy: Encourage younger generations to participate in decision-making and stewardship of charitable efforts.

Philanthropy not only benefits society but also fosters a sense of purpose and responsibility among heirs.

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9. Manage Emotional and Psychological Considerations

The transfer of wealth often brings emotional and psychological challenges, including:

• Entitlement: Heirs may feel entitled to wealth, leading to complacency or dependency.
• Guilt: Some beneficiaries may feel unworthy of their inheritance.
• Conflict: Differing opinions on wealth and its use can strain relationships.

Families can address these issues by promoting shared values, emphasizing the importance of hard work, and seeking guidance from therapists or counselors if needed.

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10. Engage Professional Advisors

The complexities of wealth transfer require expertise from various professionals, including:

• Estate Planning Attorneys: Draft legal documents and ensure compliance with state laws.
• Wealth Planners: Develop strategies to preserve and grow assets.
• Tax Professionals: Minimize tax burdens and identify opportunities for tax-efficient giving.
• Family Business Consultants: Navigate the challenges of business succession.

A team of trusted advisors can provide comprehensive guidance and peace of mind.

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