America is currently undergoing the greatest wealth transfer in history.
There is $1 trillion (yes, that’s with a “T”) in assets being transferred each year now through the next 46 years. According to a study released from the Boston College Center on Wealth and Philanthropy in 2014, there is an expected $59 trillion that will be passed down to heirs, charities and taxes between 2007 and 2061.
However, as we often see, more money can cause more problems, especially when it comes to dividing up family money in what can be a large group full of varying or even competing goals. Should we sell the home? For how much? When should we sell it? Imagine five siblings inheriting a piece of property or a family owned business. Some may want to sell today while others want to hold onto it forever.
According to research by the Williams Group, approximately 70 percent of wealth transfers are not successful – meaning that heirs end up with virtually nothing. Oftentimes the beneficiaries will receive the assets successfully, but after the transfer of wealth, the family dynamic shifts to not be harmonious, and ultimately the family does not retain control of the assets.
The three most common reasons for wealth transfer failures are:
- Lack of trust and communication.
- Heirs are not prepared for their roles and responsibilities that inheritance can bring.
- The family did not have an idea, or mission as to where the money should go, and the purpose it should serve.
Here’s a checklist of five ways to help ensure that your financial legacy will continue to help your loved ones long after you’re gone:
- Tell your heirs about your financial details. We normally avoid talking about our personal finances even with loved ones, but you need to be sure that your heirs are familiar enough with the details of your estate that they can assume management or oversee the assets once you’re gone.
- Involve your heirs in the estate planning process. This will help to start the dialog of how your estate will be passed down. This is also a good time to work on your family’s mission statement.
- Prepare your heirs to assume management and oversight of your assets. If you are passing along a business or large investment, you should talk with your heirs about your values and hopes for these assets. Clarify now so they aren’t left guessing later.
- Organize your financial documents, and have them in one location. You don’t want your heirs having to scramble to find different parts of your estate. Keep all this information in a safe location, and let your heirs know where it’s located.
- Help build the relationship between your heirs and your financial team (financial advisor, estate planning attorney, and CPA). By helping forge this relationship early, your heirs will have resources to turn to if the transfer of wealth gets tricky. It will also help prepare them for their future roles and all that the inheritance brings.
Ultimately, the most important component of any successful wealth transfer is communication. No matter if you’re passing on billions, millions, thousands or less, we all hope that the money that we leave our loved ones will succeed in helping them for years to come. By working through the above checklist, you might actually be able to make your financial legacy last.
Certified financial planner Wes Moss offers financial and accessible investment advice to Atlanta Bargain Hunter readers.