Take Control of Your Legacy: Planning for Generational Wealth Transfer

The Silent Generation and Baby Boomers are incredibly fortunate generations—and so might be their heirs. Cerulli’s U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2021 report predicts these generations will transfer $72.6 trillion in assets to heirs and $11.9 trillion to charities through 2045.

That’s a lot of money, and it presents a unique opportunity for Gen Xers and Millennials to secure their financial futures. But it’s important to remember that this wealth won’t just magically appear. It will take planning and communication between the generations to transfer it smoothly.

Get an honest assessment of how much wealth there is to transfer

Managing expectations is one of the biggest challenges heirs face when inheriting wealth from their parents or grandparents. Many Gen Xers and Millennials believe they will inherit a large sum of money, but this may not be the case.

Older generations are living longer and may spend a large percentage of their estate before it can be passed on. Others might give away too much money now and need financial support from their adult children later.

The first step in any estate planning discussion is getting honest about what heirs hope to receive and what the older generation can afford to give.

Decide who needs to be involved in the planning process

Older generations can find it difficult to talk about their death. They may feel like they are losing control over their life and finances. Or they may be afraid that their heirs won’t be able to handle the responsibility of inheriting wealth.

However, it’s essential for members of different generations to have open communication about estate planning. That way, everyone is on the same page when the time comes to hand over the reins.

Involving a third party—a CPA, financial advisor, or attorney—in these conversations can help. These professionals do more than ensure the estate planning documents are in order and help navigate tax issues. They can also help facilitate difficult conversations between family members and negotiate any conflicts that might arise during the process. By working with these professionals, families can avoid

costly legal disputes and ensure that their wealth is transferred seamlessly from one generation to the next.

Incorporate education into your estate planning

Even if the younger generation has a good idea of how much they’ll inherit, there may be some surprises. For example, they may inherit assets that must be managed carefully, such as a business or real estate. Or they may be expected to take over their parent or grandparents’ philanthropic activities.

Members of the younger generation who were kept in the dark about these decisions often struggle to live up to expectations.

If you plan on leaving a legacy for your heirs, start educating them about your intentions. Make sure they understand the role you expect them to play in managing and using the wealth you leave behind.

Start the process early

Every estate plan is unique, but with a long runway and proper planning, most estate tax is avoidable. The key is to start right away—as soon as it’s clear that are assets you want to transfer.

Some simple strategies you can start implementing now include:

• Contributing assets to a family limited partnership (FLP) and gifting limited partnership interests to heirs (or to a trust for their benefit)
• Gifting up to the annual exclusion limit ($16,000 per recipient in 2022, $17,000 in 2023)
• Make tuition payments directly to an educational organization or medical expenses directly to the provider to avoid having them treated as taxable gifts

When transferring wealth from one generation to the next, specific strategies will vary depending on whether you own a business, have philanthropic inclinations, and who your heirs are. However, what doesn’t change from one estate plan to the next is the need for communication.

For any generational wealth transfer to be successful, heirs need to understand why the wealth is being transferred, how it will be managed, and their role in the process.

Failure to communicate effectively can lead to many problems, including family feuds and lost money. So, families need to have open discussions about generational wealth transfer early on—before any decisions are made. Managing expectations and having honest conversations can help your family avoid misunderstandings and ensure the transition goes as smoothly as possible.