By When we spend time in the office mapping out a long-term financial strategy, it’s easy for us to get buried in the mechanics — how much to move, what to withhold for taxes, how to structure the accounts to maximize tax efficiencies. These are all important considerations when it comes to protecting your capital.
While these estate tools are important, what people often ignore in the planning phase is taking the time to plan for the biggest variable, which is the people who are actually inheriting the money.
Many folks tend to think of wealth preservation, but they often fail to think of wealth preparation. It’s not just about leaving your family assets. We’ve seen wealth transfers fail; a common wisdom that’s backed up by research says that it can take six generations to build sizeable wealth, but it can take two generations to lose it. The first group of inheritors enjoys the wealth, and the second generation watches and models their behavior after the first. Poof. The wealth can be gone before you know it.
That’s what can happen when you don’t take the time to educate your heirs on how these funds should be handled. This is about family governance and executing your long-term game plan on everything you’ve been able to save and build. What was important to you and your predecessors, and how should that legacy continue after you’re gone?
Just like in any family dynamic, open communication about what the expectations are plays an important role. Sometimes there’s a misalignment of values between generations. The funds that used to go to charity may now sit in a brokerage account or may be squandered on major purchases. Or the heirs may be completely caught off guard by grief or even by how much money they’re inheriting, and they may be frozen by the idea of making changes to the accounts. It’s not easy to flip the switch and become the new matriarch or patriarch of the family.
Talking to your future heirs about money is a very intimate conversation. But I would challenge you to put that aside and stop looking at wealth transfer as a one-time event, but rather an ongoing legacy shift that can allow you to move the next generation toward growth, learning, and structure.
This might be a legacy letter to the family, or it might take the form of a trust. But rather than surprising your heirs when you’re no longer around, take the time to build that blueprint for them so that they can be better equipped to thrive with the stewardship opportunities they’ve been given and bless their generation and generations to follow.
This is where a trusted financial advisor can be helpful in taking some of the emotion and awkwardness out of that conversation and helping facilitate the creation of a concrete plan where everyone understands their roles and the expectations that come with a wealth transfer
If this is a conversation you’ve been putting off with your loved one, get in touch with us. Our mission is “growing wealth for generations”. It’s right there on the logo. Let us help you navigate this process and prepare your loved ones to continue your legacy.
This material is for informational purposes only and is not intended as investment, tax, or legal advice. Individuals should consult with their own qualified professionals before making any financial decisions. Family Financial Partners does not offer tax or legal advice. Estate planning services provided in conjunction with your licensed legal professional.
Article by David Smyth, Senior Partner and Wealth Advisor at Family Financial Partners — a financial services firm in Lexington, Kentucky.