Every decade, billions of dollars are transferred from older to younger generations. With this, a wide range of experiences are had. Some are positive in how wealth is transferred and utilized by the next generation, and others have squandered the opportunity.
Planning, conversations, setting expectations, and making the right financial moves today to successfully plan a wealth transfer between generations.
Here are some tips for passing on wealth to the next generation that every family could utilize.
Start With Conversation
Older generations wanting to transfer their assets to their children and grandchildren need to open communication now. This is because you want the next generation to feel empowered and educated about making the most of their inheritance.
Unfortunately, most families never start these conversations later in life. It should be among the first things that happen.
Hire A Family Office
A family office offers a dedicated team to manage your family’s wealth. They provide all sorts of guidance for the present and future on how to grow your wealth and manage it specifically within the family context.
If you desire to pass on your wealth to the next generation, there is no better financial advisor on precisely how to do that than a skilled, experienced family office team.
Make Decisions Together
While the ultimate decision-maker is the person with the wealth, it’s worthwhile to let the next generation decide how wealth is transferred. Ask and consider their opinions.
Ask them what instructions they would prefer for the estate and how they would manage it. Introduce your children to a financial advisor or family office to include them in a greater understanding of wealth growth.
Tackle Disagreements Today
Disagreements about how to fulfill your wishes will not go away. They need to be carefully discussed and resolved in the present. If not, after the older generation is no longer there to guide and wealth is passed on, disputes will arise.
This could spill into the courts and, in the past, tore families apart trying to decide how to manage wealth.
Be Realistic About Your Needs
Be honest in conversations with your family about what you want or need going forward.
Define your planned retirement date, the amount of funds you need monthly to live, your life expectancy, how much control you want to retain or not retain over the assets you bestow, and plans for charitable donations.
It’s still your wealth, so don’t hesitate to specify how you intend to use it.
Maximize Your Assets By Investing
There is no age at which someone should stop building wealth. Always, you want to grow and maximize assets. Follow a strong investment strategy with liquidity, diversification, calculated risk-taking, and a required return rate built-in.
In retirement, you may want to invest more in minimizing risks as much as possible. You may also want to find ways to get the returns you need to meet your financial goals.
Look At Private Investments
There are many ways to earn passive income through private investments. REITs, private equity growth funds, investing in a business independently, and other strategies may be worth pursuing with a financial advisor. Make sure to leave all investments on the table if it’s moral, ethical, and socially responsible.
Stagger Your Transfer Of Wealth
While you can give it as a lump sum, many choose to kick-start the inheritance-transfer process by opening an investment account in a family member’s name, gifting them the purchase of a home or similar asset, or staggering the transfer of wealth.
Hence, it comes at a time. How you time your inheritance giving will impact tax requirements and inflation.
Pay As Minimal Taxes As Possible
Speak to a trusted advisor skilled in taxable family wealth transfers. It’s essential. A family can give away significant portions of their wealth in taxes without carefully reviewing where, when, and how to pass on wealth.
There is a never-ending list of ways to save taxes, from TFSAs to RRSPs, transfers to spouses, charitable donations, and gifting financial gifts to your children instead of assets.
Proactive Wealth Transfer Is Encouraged
Children will have expenses as they grow. Tuition expenses or student loan debt. Mortgage debt or struggling to save for a down payment on their first home. Medical costs. These events are likely to unfold before the family head passes.
Proactive wealth transfer allows you to see for yourself how your hard-earned money makes a positive impact on your family members.
Disclaimer: The above references an opinion of the author and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice. Invest responsibly and never invest more than you can afford to lose.
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