Whether it’s called “The Great Wealth Transfer,” “The Silver Tsunami,” or some other catchy-sounding name, it’s a fact that a tremendous amount of wealth will pass from aging Baby Boomers to younger generations in the next few decades. In fact, it’s said to be the largest transfer of intergenerational wealth in history.
Because no one knows exactly how long Boomers will live or how much money they’ll spend before they pass on, it’s impossible to accurately predict just how much wealth will be transferred. But studies suggest it’s somewhere between $30 and $50 trillion. Yes, that’s “trillion” with a “T.”
And while most are talking about the benefits this asset transfer might have for younger generations and the economy, few are talking about its potentially negative ramifications. Yet there’s plenty of evidence suggesting that many people, especially younger generations, are woefully unprepared to handle such an inheritance.
Indeed, an Ohio State University study found that one third of people who received an inheritance had a negative savings within two years of getting the money. Another study by The Williams Group found that intergenerational wealth transfers often become a source of tension and dispute among family members, and 70% of such transfers fail by the time they reach the second generation.
There are several proactive measures you can take to help stave off the risks posed by the big wealth transfer. Beyond having a comprehensive estate plan, openly discussing your values and legacy with your loved ones can be a key way to ensure your planning strategies work exactly as you intended. Here’s what I suggest:
Create a plan: If you haven’t created your estate plan yet—and far too many of you haven’t—it’s essential that you put a plan in place as soon as possible. It doesn’t matter how young you are or if you have a family yet, all adults over 18 should have some basic planning vehicles in place.
From there, be sure to regularly update your plan, ideally on an annual basis and immediately after major life events like marriage, births, deaths, inheritances, and divorce. I maintain a relationship with my clients long after your initial planning documents are signed, and my built-in systems and processes will ensure your plan is regularly reviewed and updated throughout your lifetime.
Discuss wealth with your family early and often: Don’t put off talking about wealth with your family until you’re in retirement or nearing death. Clearly communicate with your children and grandchildren what wealth means to you and how you’d like them to use the assets they inherit when you pass away. Make such discussions a regular event, so you can address different aspects of wealth and your family legacy as they grow and mature.
When discussing wealth with your family members, focus on the values you want to instill, rather than what and how much they can expect to inherit. Let them know what values are most important to you, and try to mirror those values in your family life as much as possible. Whether it’s saving money, charitable giving, or community service, having your kids live your values while growing up is often the best way to ensure they carry them on once you’re gone.
Communicate your wealth’s purpose: Outside of clearly communicating your values, you should also discuss the specific purpose(s) you want your wealth to serve in your loved ones’ lives. You worked hard to build your family wealth, so you’ve more than earned the right to stipulate how it gets used and managed when you’re gone. Though you can create specific terms and conditions for your wealth’s future use in planning vehicles like a living trust, don’t make your loved ones wait until you’re dead to learn exactly what you want their inheritance used for.
If you want your wealth to be used to fund your children’s college education, provide the down payment on their first home, or invested for their retirement, tell them so. By discussing such things while you’re still around, you can ensure that your loved ones know exactly why you made the planning decisions you did. And doing so can greatly reduce future conflict and confusion about what your true wishes really are.
Regardless of how much or how little wealth you plan to pass on—or stand to inherit—it’s vital that you take steps to make sure that wealth is protected and put to the best use possible. I have unique processes and systems to help you put the proper planning tools in place to ensure the wealth that’s transferred is not only secure, but that it’s used by your loved ones in the very best way possible.
Moreover, every plan I create has built-in legacy planning services, which can greatly facilitate your ability to communicate your most treasured values, experiences, and stories with the ones you’re leaving behind. By working with me, you can rest assured that the coming wealth transfer offers the maximum benefit for those you love most.
This article is a service of Beverly R. Davidek. I don’t just draft documents; I ensure that families and business owners make informed and empowered decisions about life and death, for themselves and the people they love.