When you acquire a significant amount of wealth, it’s crucial that you create a plan to preserve your assets. After all, you deserve to protect the legacy you’ve worked so hard to build. And if you have a family, you should consider how they might benefit from your successful financial decisions.
This is where intergenerational wealth planning can be helpful. Below, our tax experts explain how family wealth planning works, and the best ways to build generational wealth.
What Is Intergenerational Wealth Planning?
Intergenerational wealth refers to how wealth passes between generations within a wider family. It’s the concept of preserving wealth by ensuring that children, and grandchildren, benefit from existing assets.
Intergenerational wealth planning is a cornerstone of any estate plan. It allows elder family members to decide how to optimally transfer their assets and wealth to younger generations.
The goals of generational wealth planning are:
- Reducing tax liabilities e.g. estate tax
- Improving financial literacy of younger family members
- Helping family members achieve financial goals
Most importantly, generational wealth planning gives you peace of mind. It offers reassurance that your assets are protected, and that your family will benefit in the long term.
Family Wealth Planning Benefits
Building wealth throughout the generations offers four key benefits.
- Empowerment: A wealth plan enables younger family members to start growing their own wealth as early as possible.
- Stability: You can use wealth planning to give loved ones future financial stability. For example, this could mean passing on the family business.
- Security: Effective planning strategies can provide older family members with financial security when they retire.
- Efficiency: Tax planning will enable you to reduce your taxable estate. This means you can preserve more of your wealth for your family’s benefit when you pass away.
You’ll also have the fulfillment of seeing your wealth grow and evolve over time.
Challenges Building General Wealth
While there are clear benefits to multi-generational wealth planning, there are also challenges to consider.
- Knowledge: Your children and grandchildren may lack the financial literacy necessary to manage larger assets. There’s a risk of wealth erosion if they are not properly supported.
- Dynamics: Family dynamics are constantly evolving. You may need to take additional steps to protect your wealth if, for example, there’s a divorce or separation.
- Planning: You invested a significant amount of time into building your wealth. However, younger generations of your family are relatively far removed from your initial investment. They may have conflicting priorities, or no plan for growing the existing wealth.
- Hesitancy: Family members may be reluctant to discuss wealth planning, as it means discussing life after your death. This hesitancy can be prohibitive, as you need to understand everyone’s financial ambitions to create an effective plan.
Our experienced financial advisors can explain what challenges you might face, based on your situation. We can help you determine the best way to nurture your wealth and protect your family’s financial future.
Intergenerational Wealth Transfers and Estate Planning
There’s a misconception that family wealth planning is solely about what happens when you pass away. However, tax mitigation is undoubtedly a significant benefit of wealth planning.
With effective multi-generational estate planning, you can:
- Use trusts and other legal mechanisms to reduce inheritance tax.
- Pay for a younger person’s education – tuition fees paid directly to a school are exempt from gift tax.
- Pay medical expenses, which again, benefit from tax exemption if paid directly to the care provider.
- Use a sum to pay an amount towards a family member’s first home. You can gift up to $17,000 in 2023 without incurring gift tax.
There are many ways to transfer wealth, both during life and after death. Our experienced advisors can walk you through your options, based on your assets and financial goals.
Tips for Successful Generational Wealth Planning
Your first step should be seeking individual financial advice. However, here are some general tips for keeping your legacy going.
- Communicate with your family. Be clear about your own goals and ensure you understand their financial ambitions.
- Pass on your financial literacy. The earlier your family members learn how to invest, the better their chances of growing your wealth.
- Invest in the future. Ensure your children – and grandchildren – have access to a quality education.
- Maintain a diverse portfolio. Diverse portfolios are more likely to be robust and continue delivering returns.
The future starts with you. Give the younger generations of your family the support they need to keep the family legacy growing.
Multi-Generational Wealth Planning from Experienced Financial Planners
Do you need help with intergenerational wealth planning? We are here for you. Whether it’s tax advice or financial planning, we offer a comprehensive solution for clients.
Build the stable financial future your family deserves. Contact Asset Preservation Wealth & Tax now to build a legacy plan.
Are you confident in your financial planning? Do you have savings and investments to consider?
Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.
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