The average person toils to get ahead and leave a financial legacy for future generations. Handling estate planning correctly ensures the money goes where it’s intended rather than getting eaten up by taxes and probate fees. Financial advisers can navigate clients along a path of long-term wealth preservation for their children, grandchildren and great-grandchildren.
What Is the Best Way to Build Generational Wealth?
Financial advisers may consider tax considerations and staying out of probate court when it comes to estate planning. However, clients can do many strategic things to ensure their wealth lasts throughout their lives and goes to their offspring.
Around 51.6% of the total wealth in the United States is in the hands of baby boomers. Millennials only owned around 10%, although the two generations are nearly equal in size. As older generations go into long-term care or pass away, what happens with their money can either improve the situation of Gen Xers and millennials or have little impact. To provide for their children and grandchildren with their share of the wealth, older clients must plan accordingly.
Some of the best ways to pass generational wealth down include several estate planning tools:
- Protect family assets from lawyers, divorcing spouses and lawsuits.
- Give gifts of allowable amounts each year once reaching a certain age.
- Utilize trusts to minimize estate taxes.
- Avoid estates going into court by clearly outlining the client’s wishes upon death.
- Offer programs to educate heirs so they manage the wealth wisely and have money to pass on to their offspring.
A Breakdown of Key Estate Planning Tools
The most powerful estate planning tool anyone has is education. The more clients know, the better choices they can make alongside an expert to protect their assets. Other things to utilize include:
Trusts
Trusts give clients a lot of security, knowing their heirs will utilize assets as desired. For people with family members who are not as responsible as they should be, a trust can control how much money gets dispersed each year and even what heirs can use it for.
Thanks to pensions going by the wayside and fluctuations in the economy, over 70% of Gen-Xers are saving with 401(k)s, IRAs or similar accounts for retirement income. Receiving a monthly or annual payout could provide them more flexibility to retire when they’re ready. Setting up a trust can help minimize estate taxes. Beneficiaries of a trust pay on the money received, but not on any principal amount in the account.
An irrevocable trust can shield assets from creditors. Once transferred into this level of confidence, a trustee manages the estate, which is no longer part of the grantor’s belongings. A dynasty trust protects wealth for generations and follows state laws. Revocable living trusts avoid probate and let clients move assets where they wish.
Wills and Powers of Attorney
A will lays out what clients want when they pass away and ensures assets are distributed as they wish. Without a will, the estate goes into probate, and outcomes can be other than what the person wanted.
Financial advisers should urge clients to make their wishes clear to avoid such scenarios should their lives be ended prematurely. Powers of attorney allow an adult appointed by the client to make financial and medical decisions if they become incapacitated.
Gifting Strategies
Clients can give a certain amount each year without triggering a tax burden. They should work closely with their advisers to ensure they write a check for the correct amount. They should also keep assets safe from double taxation paid from when they earned the money and when the person receives it.
Pay attention to the lifetime gift and estate exemption, which varies and can include appreciation on business assets and real estate. Clients can also allocate funds to 529 savings for education and invest in future generations via that vehicle.
Advisers can suggest investing in decentralized finance as a way to diversify. They should also guide clients to only invest what they can afford to lose, as cybercurrency is typically in flux.
How to Protect Assets
Those with many assets may be at the mercy of various lawsuits and unscrupulous individuals. They should plan on forming a limited liability corporation or a trust. The issue is complex, and everyone has different needs.
Allocating funds to philanthropic organizations allows people to support the causes they hold dear. At the same time, financial advisers can offer workshops and online microlessons about making the most of an inheritance to protect those coming into money.
Create a Lasting Legacy of Financial Security
An estate plan is more than what people leave behind. It ensures future generations take on the wealth and values of generations before. Financial advisers must determine the ideal strategy for each family and guide clients to the best method to protect what they’ve worked so hard for.
