When it comes preserving wealth for multiple generations, and successfully transferring wealth to heirs, we find that there are three common challenges families face: implementing an estate plan, discussing wealth with children and preparing those children to handle their inherited wealth. To address these pain points, we are providing some insights and best practices which may help reduce stress during the wealth transfer process.

Implementing an Estate Plan

The ideal estate plan should allow estate tax savings, while putting the assets in a position to be protected, not only for the matriarch and/or patriarch, but also for future generations. An estate plan inevitably requires the matriarch and/or patriarch to relinquish some control of their assets, and at a certain point to transfer them to the next generation.

Setting up a beneficiary defective inheritor’s trust has helped many of our clients retain some control over their assets, while ensuring those assets will still be protected for future beneficiaries. This option allows a primary beneficiary to serve as trustee and still have some control of any assets he or she sells the trust without any immediate federal income tax consequences. Ultimately, the trust goes on to the primary beneficiary’s children once he or she passes on. Even with the right estate plan in place, children must still understand how to properly handle their inherited wealth.

Discussing Wealth with Children

In our experience, we have found many clients are uncomfortable having discussions about their wealth with their children because they fear their children will develop a sense of entitlement. But in reality, children usually believe the family has a higher net worth than they actually do. Without full disclosure and open discussions, family tension can build up around these types of misconceptions about family wealth.

Some wealth management practitioners are so preoccupied with helping families transfer their assets to the next generation that they don’t spend nearly enough time preparing the next generation to handle those assets. At Waldron, we devote significant time to an educational process for our multi-generational families that includes working closely with the next generation heirs to develop a thorough understanding of the assets they will receive, budgeting and cash flow management, as well as setting investment objectives, tax planning and estate planning.

Preparing Children to Handle an Inheritance

One of the critical concepts high net worth families must understand when preparing the next generation for inheritance is that responsibility is learned over time. Inevitably, the next generation will assume the responsibility of wealth, but without open and honest communication, heirs aren’t just going to “get it” at a certain age. The most important thing about wealth is that each person needs to understand their role and responsibility in the family’s vision and legacy. They have to understand how their family’s wealth is relevant to them, not how it’s relevant to their parents or grandparents.

One other thing we’ve found in many multi-generational families is that you can’t maintain the same lifestyle over multiple generations. Children feel the pressure to dress a certain way, to buy a certain house and to live the same lifestyle as their parents, but due to the simple law of wealth division and taxation, they will not end up with nearly as much money as their parents had. The trick is helping them understand what they can afford, in order to mitigate the family pressure they may face.

We work closely with our clients to develop comprehensive estate planning goals. Click here to learn more about our approach.

Chris Roe, CPA/PFS

Partner and Managing Director

Hall of