The Great Wealth Transfer

Strategies and safeguards for leaving a legacy that lasts

An estimated $90 trillion of accumulated wealth is expected to be inherited over the course of the next two decades. For families and their financial advisors, this presents both an opportunity and a responsibility. Managing this unprecedented transition of wealth will require savvy and strategic wealth management, genuine care and consideration for family dynamics and priorities, and clear and consistent communication between advisors and their clients’ families.

Here are some best practices for how Baby Boomers and their wealth management partners can work together to not just protect and provide for the next generation, but to leave a legacy that lasts.

Start the conversation

Every parent considering how to best pass assets along to their children has thought about how that money will be used. It’s natural to think about whether or not an 18- or 25-year-old benefitting from a trust will be able to use the money effectively. For high-net-worth individuals, it helps to feel comfortable with the next generation’s financial literacy and competency. Don’t hesitate to have a candid conversation with your kids about stewardship and financial responsibility, including the importance of using inherited funds for things like education, healthcare, lifestyle support, and lasting financial security.

Prioritize autonomy and responsibility

A dynasty trust is a great way to educate the beneficiaries while also stewarding and protecting the trust’s assets. Instead of establishing a trust that simply awards a large sum of money to your children at a certain age, a dynasty trust stipulates that inherited funds are only to be used for specific purposes (e.g. healthcare, education, a first-time home purchase, a business start-up, etc.). Money is available as needed, but it never leaves the trust. A phone call to the trustee is all it takes to free up funds, which makes the trust protective, but not restrictive. An inheritance can be subject to divorces, creditors, lawsuits, and more. A dynasty trust protects the money, making sure it lasts longer and is used in ways that will make a meaningful impact on your children’s lives. Any inherited funds that are not needed or that go unspent simply pass on to the next generation, never leaving the family.

Be thoughtful and informed inheritors

Nothing can replace great communication between family members. From the perspective of a financial advisor, the single best piece of advice to anyone inheriting a substantial sum of money from a parent or parents is to not rush into anything. Learning of an inheritance often coincides with mourning the loss of a loved one, and the resulting emotional cocktail can lead to poor decisions. Build an experienced team of advisors, including a trusted fiduciary, who can counsel you and help you make thoughtful and informed decisions.

Avoid common mistakes

Baby Boomers looking to do the right thing with their inheritance can achieve a lot simply by avoiding some of the most common missteps and pitfalls, including:

Underestimating the impact

Don’t make irrevocable decisions without truly appreciating how much money you are dealing with. Even an estate growing at a conservative 5% after spending and taxes has significant momentum. At that rate, a $5 million estate at age 50 would be $35 million at age 90. Even with a less aggressive portfolio that “only” doubles three times during that period, you’re talking about passing on $40 million to your children. That’s a large sum of money and it makes sense to be thoughtful about how, when, and to whom you want to distribute those assets.

Failing to think ahead

The best estate planning attorneys help you think about not only the size of the inheritance you are passing along, but also its potential impact. The right advisor can help you ask and answer questions like what you want your future and your family’s future to look like, and then review issues or items that need to be addressed to make sure that process is handled carefully.

Waiting too long

The list of high-profile examples of individuals who had no estate plan in place when they died is long and sobering. It’s always better to act sooner rather than later to protect your family.

Find the right advisor

The right advisor does much more than simply manage your money. Look for an advisor that listens to your priorities and provides personalized, strategic, and caring counsel. Ultimately, families are in the same boat, so make sure your financial decision making reflects that spirit of connectivity. Remain focused on the only thing that really matters: the long-term security and well-being of your loved ones.