Successful Family Wealth Transition: How Do You Do It?

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Within the next few years, Baby Boomers will likely pass on $ 8 trillion in wealth to the next generation. They are known as the wealthiest generation in the history of the U.S., making this event the “great wealth transfer.”

Wealth planning for high-income families is a daunting task. Carelessness can cause unnecessary losses, but a good wealth transition plan can mean preserving your legacy for generations to come. Here’s how to make it successful.

Making Preparations

Getting tasks and documents in order will require much planning. Some preparations are absolute musts in making sure that your wealth is properly transferred to your heirs.

Hire a professional.

You shouldn’t be handling this all on your own. Even before retirement, employ the help of a financial advisor who can take care of your investments, insurances, and other aspects of your regular finances. Early financial planning is a safeguard against poor money choices that can significantly affect your future wealth.

High-net-worth individuals should also consider hiring a wealth manager who focuses on estate planning, tax services, and accounting specifically for affluent persons. They provide more extensive assistance in growing and maintaining wealth that your children and grandchildren can benefit from.

Ready your will.

Although it isn’t the most uplifting activity, preparing for your death is a vital step in wealth transition. Hire a lawyer to walk you through the process of distributing your assets, such as your estate, to the next generation. Their assistance will simplify the process of writing your last will.

Dying in intestacy or passing away without a will leaves the division of assets to a probate court. The court then assigns an administrator to manage the succession of assets among legal heirs. Having a will prevents potential conflicts among beneficiaries regarding the distribution.

Have a living trust.

It might seem redundant to have both a will and a trust, but having both is a wise safeguard. One advantage of a trust is that the assets you leave in this manner will bypass the probate process involved in a last will and testament. However, trusts do not cover the guardianship of minor children or the cancellation of debts owed to you.

You can choose between setting up a revocable or irrevocable living trust. If you have second thoughts, a revocable trust allows you to modify your trust’s terms or cancel it entirely. Keep in mind that estate taxes apply for assets in this trust because they are still considered your personal property.

On the other hand, an irrevocable trust prevents you from changing any part of it once signed into the agreement. The upside is that property in these trusts cannot be taxed when a person dies.

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Plan for your long-term care.

When you grow old, you want to alleviate the burden of shouldering your living expenses from your children. Regular health insurance doesn’t cover all your needs in old age. Long-term care (LTC) insurance gives allowances to pay for retirement care, such as your home in retirement or daycare.

Start investing early because LTC insurance becomes more expensive the older a person gets. As a benchmark, Americans pay an average of $21 hourly for home health services and $19 hourly for homemaking services. These prices can still go up, though, depending on your location.

Facilitating Family Discussions

Often, the most difficult part of wealth transitions is not the preparations but the conversations with family. There are steps for discussions with family members that will avoid conflicts and misunderstandings.

List down your assets.

Work with your financial advisor and wealth manager to put together an inventory of your personal assets. These typically include your real estate, savings accounts, insurance policies, retirement benefits, and even valuable collectibles you may own. This list will keep you and all involved family members on the same page regarding what will be distributed to them.

Talk it out.

Not having open conversations before a wealth transfer often leaves surviving family members with confusion and unmet expectations. While you are able, explicitly convey any of your wishes regarding specific assets, if any. Have regular conversations with family about how the division will go and how to manage these when you are gone.

The ideal situation is for all beneficiaries to be aware of what will happen in the event of your death. You can tackle discussions about your trust and will with your financial advisor and/or wealth manager present, too, to help explain anything.

Ultimately, how you approach the topic of wealth transition depends on you and your family’s dynamics. But success is most likely when you are clear about your assets and wishes.

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