Over the next few decades, a massive transfer of wealth, aptly named the “Great Wealth Transfer”, will pass from ageing Baby Boomers to Millennials. It is said to be the largest transfer of intergenerational wealth in history.
It is impossible to accurately predict just when or how much wealth will be transferred, because no one knows exactly how long Baby Boomers will live or how much money they will spend before they pass on. However, studies suggest it is somewhere between $30 and $50 trillion that will be passed on. Yes, that’s a “trillion” with a “T.”
A blessing or a curse?
While most experts are talking about the benefits this asset transfer might have for younger generations and the economy, few are talking about the potential drawbacks. There is plenty of evidence suggesting that many people, especially younger generations, are woefully unprepared to handle such an inheritance.
An Ohio State University study found that one third of people who received an inheritance had a negative savings within two years of getting the money. Another study by The Williams Group found that intergenerational wealth transfers often become a source of tension and dispute among family members, and 70% of such transfers fail by the time they reach the second generation.
Whether you will be inheriting or passing on this wealth, it is crucial to have a plan in place to reduce the potentially disastrous effects such transfers can lead to. Without proper estate planning, the money and other assets that get passed on can easily become more of a curse than a blessing.
Baby Boomers should be proactive to help younger generations
If you are a Baby Boomer who may be passing on your estate to younger generations, there are several proactive measures you can take to help stave off the risks posed by the big wealth transfer. In addition to having a comprehensive estate plan, you should consider openly discussing your values and personal legacy with your family and loved ones. This communication is an important step to ensure your planning strategies work exactly as you intended. Here are some of my suggestions:
Create a plan
If you have not created your estate plan yet—and far too many Americans have not—it is essential that you put a plan in place as soon as possible. It does not matter how young or old you are, whether or not you have kids, and/or the amount of assets you own – all adults over 18 should have, at least, some basic planning vehicles in place.
From there, be sure to regularly update your plan on an annual basis and immediately after major life events like marriage, births, deaths, inheritances, divorce. and retirement.
I maintain a relationship with all my clients long after their initial planning documents are signed, and my built-in systems and processes will ensure my client’s plans are regularly reviewed and updated throughout their lifetime.
Discuss wealth with your family early and often
Do not put off talking about wealth with your family until you are in retirement or nearing death. Of course, no one likes talking about death, but these important discussions do not have to treated as something negative or depressing. Instead, use these discussions as an opportunity to express to your family and loved ones – namely your children and grandchildren – what wealth means to you and how you would like them to use the assets they inherit when you pass away.
Making such discussions a regular event will allow you to address different aspects of wealth and your family legacy as they grow and mature.
When discussing wealth with your family members, clearly communicate and focus on the values you want to instill, rather than what and how much they can expect to inherit. Let them know what values are most important to you and try to mirror those values in your family life as much as possible.
Whether it is saving money, charitable giving, or community service, having your kids understand your values while growing up is often the best way to ensure they carry them on when you are gone.
Communicate your wealth’s purpose
Outside of clearly communicating your values, you should also discuss the specific purpose(s) you want your wealth to serve in your loved ones’ lives. You worked hard to build your wealth, so you have more than earned the right to stipulate how it gets used and managed when you are gone.
Though you can create specific terms and conditions for your wealth’s future use in estate planning tools like a living trust, do not make your loved ones wait until you are dead to learn exactly what you want their inheritance used for.
If you want your wealth to be used to fund your children’s college education, provide the down payment on their first home, or invested for their retirement, tell them so. By discussing such things while you are still around, you can ensure your loved ones know exactly why you made the planning decisions you did. Doing so can greatly reduce future conflict and confusion about what your true wishes really are.
Secure your wealth, your legacy, and your family’s future
Regardless of how much or how little wealth you plan to pass on—or stand to inherit—it is vital that you take steps to make sure that wealth is protected and put to the best use possible.
I have developed unique processes and systems to help you put the proper planning tools in place to ensure the wealth that is transferred is not only secure, but that it is used by your loved ones in the very best way possible. Moreover, every plan I design with my clients has built-in legacy planning services, which can greatly facilitate your ability to communicate your most treasured values, experiences, and stories with the ones you are leaving behind.
By working with me, you can rest assured that the coming wealth transfer offers the maximum benefit for those you love most.
Schedule an initial consultation today to learn more.