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Perspectives on Multi-Generational Planning

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Although planning a decade or two can be difficult, the best estate plans look at wealth issues multi-generationally. Generational wealth begins when one family member accumulates enough wealth to pass down to the next generation. In turn, the children leverage the handed down wealth and create more wealth which they also pass on to their children, and so on. It is considered multigenerational when passed on to more than one generation.

Data from Forbes indicates that within three generations, 90 percent of wealthy families lose almost all of their wealth. The implication is that somewhere along the way, those who inherit wealth make investment decisions that erode that inherited wealth and leave nothing to be passed down to the next generation. It’s also important to note that, besides bad investment decisions, a lack of estate planning can lead to wealth erosion due to taxes and the often expensive and time-consuming probate process.

Ideally, starting the estate planning process is best when you have acquired or accumulated assets that you want to pass on to your children. More specifically, you should implement multigenerational wealth planning to ensure your goals for future generations are secured in a manner that also protects your wealth or assets and reduces estate taxes.

Even with the allowable federal tax exemptions, your remaining assets can still be subject to very high taxation rates. Consider using legally acceptable tools like tax-free gifts, family limited liability companies, annuities, or trusts to avoid this outcome. A trust provides tax advantages besides financial protections and can contain assets such as real estate, businesses, and investments. In addition, when a trust has a spendthrift clause, the transferred assets are protected from the beneficiaries’ creditors.

With multigenerational wealth planning, when you start the process early, you have fewer chances of unpleasant surprises down the line. You may also discover that it’s possible to begin passing on some of the assets to your children when you are alive rather than after your passing. Remember that your family structure or dynamics may change over time as you plan. In addition, any charitable donations on your part may affect the wealth your beneficiaries ultimately receive.

Involving the rest of your family is important to pass on your wealth successfully. Although an important part of the process may include communication with family members and even considering their viewpoints, it’s essential to remember that the ultimate distribution decisions should reflect your beliefs regarding what is best for the broader family interest.

You may also want to consider introducing your family to your financial adviser. Invest time or resources in providing your children with financial education on basics such as starting saving early, prudent spending, and giving. This will help instill monetary values that perpetuate your family history of wealth creation and preservation among your children.

Finally, remember that a well-crafted estate plan also serves as the legal framework to ensure that your multigenerational wealth planning is well executed after your death. Estate planning is an ever-evolving and complex area of law. Before embarking on estate planning, it’s prudent to consult a financial advisor or estate planning professional.