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Intergenerational Wealth Transfer: How do you plan for it?

Adeola Ojierenem
July 28th, 2022

An essential part of accumulating wealth is transferring it to the right people. A U.S federal reserves report showed that an average of 2 million households receive wealth transfers with an average value of $350 billion a year. Generational wealth can be transferred in various forms — through inheritances (upon death), inter vivo gifts (while still alive), businesses, or charity donations.

An effective wealth transfer plan helps you pass on wealth to your families at the right time. Most recipients of inheritances are well advanced in age, an average of 60 years, while most inter vivo gifts beneficiaries receive assets in their mid-twenties.
An important part of preserving your wealth within your family is planning for an intergenerational wealth transfer. A wealth transfer plan can vary for every individual. Here’s how you can go about it.

Keep good records of your assets

Do you know your actual net worth? Having an effective platform that shows you a total picture of your assets helps you accurately measure your wealth. When you know the value of your assets, you can plan on how to grow them, preserve them, or transfer them.

Evaluate your family needs

Your family makeup can influence your financial planning and wealth transfer strategies. If you have a nuclear family unit, planning for a wealth transfer may be straightforward. However, an intergenerational wealth transfer plan may become complicated with an extended or blended family structure. You may need to discuss your wealth transfer plans with family members.

Estate and trusts planning

An estate plan helps with the distribution of your wealth and assets in the event of death. With an estate plan, you can draw up a will and appoint a liquidator in charge of sharing your asset among your intended beneficiaries. You will need to gather all the necessary documentation that shows how much you own and owe.

You can also set up a trust and transfer wealth to your beneficiaries based on certain conditions. The trustee will manage the assets in the trust and disburse them based on set conditions. You can set up a revocable trust that you can alter in the future or an irrevocable trust that you cannot change. Unlike an estate, you can use a trust to manage wealth transfers while still alive.

Estates and trusts have legal structures that determine the taxation impact on the actual transfer of assets. Ensure that your wealth transfer plan aligns with your tax strategies.

Challenges For Intergenerational Wealth Transfers

Taxes

Planning for a generational wealth transfer comes with some challenges and may have significant tax implications, such as estate tax. Typically, states may exempt spouses and sometimes children from paying inheritance taxes. However, some beneficiaries have to pay inheritance tax in Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania. Other states impose estate taxes only, while Maryland requires beneficiaries to pay inheritance and estate taxes.

You can minimize or defer taxes using effective tax strategies.
For example, if you have a family business, you can employ your children and pay them wages or contribute to their retirement plan. This helps reduce your current taxes when you claim their salaries as business expenses. You can also minimize your taxes by donating to charity organizations and building a beneficial reputation for your family.

Disclosing Wealth-related Information

Another thing to consider when planning intergenerational wealth transfers is how much information to share with family members. Most people are skeptical about divulging certain information regarding financial assets, trusts and inheritances in the early stages for various reasons.

For example, some wealth transfer benefactors are not old enough to understand the financial implications of wealth transfers. At the same time, some do not have adequate financial education and preparedness to handle intergenerational wealth transfers.

To ensure a seamless wealth transfer, create a great relationship with family members and ensure that your beneficiaries are financially literate to make decisions that preserve the family wealth. Set up a trust and an estate that ensures your assets are distributed as you want.

Uncertainties

Longer life expectancies and increasing cost of living also make it challenging to put together an effective plan for wealth transfer. If you wonder how much to set aside for your children or other dependents while also having enough to sustain you and your family in the short or long term, you need to draw up a financial plan.

An elaborate financial plan will account for your current assets and liabilities as well as future cash flows to determine the best method for distributing your assets. Instead of a lump-sum payment, you can opt to transfer wealth to your beneficiaries gradually, in portions.

Conclusion

As soon as you start to accumulate wealth, it is essential to plan how to grow your assets, preserve them, and transfer them to your family. You can also plan a wealth transfer by donating to charity.

The first step to an effective wealth transfer plan is identifying how many assets you have and determining your net worth. Most people have different asset classes scattered across various platforms. You can account for all your assets, including conventional and alternative investments using Vyzer.

Vyzer provides an effective way to stay on top of all your assets in one place. A centralized platform like Vyzer is essential for estate planning and intergenerational wealth transfer objectives. An account that shows all your assets, helps you calculate your net worth accurately, plan your cash flow, and create an effective estate, trust plan, or will, seamlessly.