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Get Ready…Get Set…Wealth Transfer

Written by Brian Puckett, CFP®, CPA/PFS, Attorney at Law.

Roughly $4 trillion is set to be passed down to heirs over the next decade. Regrettably, the majority of Americans are unprepared for this massive wealth transfer. Consider a recent RBC Wealth Management report stating that only 30% of Americans have a full plan ready to transfer their wealth. By the same token, 30% have done nothing to prepare for wealth transfer, according to the report.

As advisors, we find this trend especially troubling. The absence of a proper wealth transfer plan can lead to a whole host of tax and other unforeseen financial implications. Also, many young people are wholly unprepared for the added responsibility that accompanies wealth, which can lead to poor decision-making and squandered money.

Effective wealth preservation requires advanced planning. Issues concerning inheritance bequests, taxes and estate planning require careful consideration. Yet many wealthy families have not even put into place something as basic as a will to set out how their assets will be divided after they pass on. Indeed, only 54% of U.S. respondents to the RBC survey said they have taken this important planning step. Leaving wealth transfer to chance sets a family up for potential disaster—both financially and emotionally.

One of the big problems many families face is the inability to communicate effectively. Wealthy parents sometimes lack confidence in their kids’ ability to manage the family’s money, or they feel uncomfortable sharing too many details of their personal finances. Children, by contrast, sometimes feel put off by their parents’ attitudes about their abilities, or they may feel overwhelmed by future expectations. That’s where an advisor can play a very important role—bringing both sides to the table to facilitate an open dialogue where issues, concerns and questions can be aired and addressed. This process is most effective when frank discussions between family members take place on an ongoing basis.

We also encourage our clients to educate their heirs early on about the basic tenets of wealth management and financial decision-making. While formal education can be helpful, we urge clients not to underestimate the importance of around-the-table dinner conversations on financial literacy topics. Later, as children get older, more precise details can be shared about the family’s wealth situation. We encourage families to bring their teens and twenty-somethings to financial advisory discussions. This helps to ensure lines of communication are kept open and future expectations are in sync.

When it comes to wealth transfer, there are often no simple answers. Rather, it takes significant advance planning, ongoing discussion and proper implementation. The earlier families get started in planning for eventual wealth transfer, the smoother the transition tends to go.

We at Align recognize the many challenges associated with intergenerational wealth transfer. We work closely with you to help you make the best decisions for you and your heirs. Please don’t hesitate to get in touch with us so we can help you work through these important issues.