Planning Perspectives

A look at life and finance from every angle.

From personal to professional, from family to financial, there are many facets to your life. Yet, each is interconnected. Planning Perspectives is a source of ideas and information to help you make the most of them all, all together.


Creating an inheritance that lasts generations

October 5, 2016 Estate, Family, Living Well, Planning Well

Preparing your heirs for sudden wealth can help prevent unwise spending.

If you have wealth to transfer, you may worry about the sometimes adverse effect of sudden wealth and the squandering of assets within a generation.

There is a good reason to be concerned: 70% of family money disappears by the second generation, and 90% by the third generation, according to the Williams Group wealth consultancy. The cautionary tales of families like the Vanderbilts also feed into this worry. The result is that 60% of parents think their children aren’t prepared to receive a large inheritance, a study by U.S. Trust shows.

If you’re in this position you have a number of options to help ensure your legacy lasts.

Take Advantage of Trusts. Trusts can help take some of the guessing game out of where money might end up, and allow you to dictate how and when your assets are distributed after you die. For individuals with relatively young heirs, age provisions that dole out trust income to beneficiaries only when they’ve reached certain ages can help. A common threshold for distribution is reaching age 25 or 30. Generation-skipping trusts are another helpful vehicle. In some cases, this type of trust can allow you to transfer money tax-free to your grandchildren or great-grandchildren.

Turn to Philanthropy. Make charitable giving a family affair can provide opportunities to connect with younger generations and communicate values and ideals. When a philanthropic mission is shared among your family, it provides a forum for communication and sharpened decision-making in a situation where the money is going to others and there is no personal interest at stake. Donor advised funds and private foundations can be effective vehicles for this type of endeavor. Charitable remainder trusts (CRTs) can also help if you wish to give assets to charity in order to leave a smaller inheritance.

Open the Lines of Communication. Many squandered inheritances can be traced back to a root cause – poor communication. In nearly 60% of boom-and-bust inheritance cases researched by the Williams Group, trust and communication breakdown among family members played the largest role. To prevent this happening in your family, consider sharing history, values and a vision for the future of the family. This can be done in-person at a family gathering or through a written statement, also known as an ethical will or legacy letter. With a common purpose and shared story, your family stands a better chance of preserving assets for future generations.

Carefully Prepare Heirs. The Williams Group research points to failure to properly prepare heirs as another cause of lost inheritance, affecting about 25% of the cases studied. Your financial advisor can play a role in educating you and your family about inheritance, as well as wealth management and its important principles.

Creating a lasting legacy is neither easy nor impossible, but the difficulty lies in the details. It’s an issue that’s especially pressing as two-thirds of baby boomers are estimated to inherit family money for a collective transfer of nearly $7.6 trillion, according to the Boston College Center for Retirement Research. Finding the tools and resources that will best benefit your family and situation can perhaps make the difference between a squandered fortune and a strong heritage that lasts generations.