Does Your Family Need an Estate Plan?

It’s never too early to start planning for the next generation. Read on to find out why your wealth transfer plan is more important now than ever.

Even in the midst of what financial professionals call “the Great Transfer”, a term used to describe the wealth (over $12 trillion) being transferred from the Greatest Generation to the Baby Boomers, another “Greater” transfer is beginning to take place. This relocation of wealth, now from the Baby Boomers to Generation X and Generation Y, is estimated to pass down $30 trillion over the next 30 to 40 years. These assets include cash, investments, property, businesses and other forms of wealth that require careful planning to pass down. But are the Baby Boomers ready to part with their wealth? And will Gen X and Gen Y know what to do with this wealth once they receive it? The sheer size of such a transfer begs the question: do you have a wealth transfer plan in place?

Many people assume that estate planning is just for the wealthy. While it’s true that entanglements like estate tax and gift tax only apply to wealth transfers of more than $5.34 million, having a multi-generational plan is valuable no matter how much you can afford to pass down. Generational wealth planning is about more than just what will happen to your money after you’re gone; it encompasses a much larger spectrum of wealth. This type of wealth could include your philanthropic interests, money values, investment strategies, or business succession plans. It’s never too early to start establishing the types of expectations and roles that will allow future generations to carry out these processes. Having a set plan will help to relieve stress, avoid conflict and create a smoother transition of wealth for your family.

Research has shown that Baby Boomers and their future heirs have vastly different attitudes when it comes to handling money. For example, although a Boomer may make regular appointments with his or her financial advisor and trust this advisor to make decisions for him or her, most people from Gen X and Gen Y will want to have a third-party opinion, whether from the Internet, a financial self-help book, or their peers. They also expect more transparency from their advisors and usually want a more hands-on approach to advising than Boomers. It’s important to talk about money values with your family before the time comes when you may have to make a difficult financial decision. If common financial goals and values are established ahead of time, it keeps you from making impulse financial decisions that may not serve the entire family’s best wishes. Research has shown that 60 percent of generational wealth loss is caused not just by lack of planning, but by a lack of communication and/or trust within the family. Even the most carefully laid plans can go wrong if family cohesiveness is not formed during the wealth transfer planning process.

With the “Greater” transfer looming on the horizon and many families unprepared, there are steps that you can take to proactively prepare for the next generation of wealth. Without a clear plan for passing down wealth, families can find themselves with nothing to hand down to their descendants. However, by initiating family discussions about money goals, organizing your wealth in a way that provides for future growth, and regularly evaluating your plan with your TrueNorth Wealth financial advisor, you can relieve much of the burden for the next generation, both emotionally and financially.

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Related Reading:

4 Tips to Remember When Creating an Estate Plan

Updating Your Estate Plan

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Essential Concepts in Estate Planning

Estate Planning for Newlyweds

Estate Planning for New Parents

Estate Planning After a Divorce