MULTI-GENERATIONAL WEALTH TRANSFERS AND TRUSTS
Whether you have inherited some of your wealth or have built it yourself, you likely want to share this wealth with the next generation and beyond.
It’s a common assumption in various cultures that the first generation builds the wealth, the second generation spends the wealth, and the third generation rarely sees any of the wealth. In fact, studies estimate that 70% of family wealth is lost by the end of the second generation and 90% percent by the end of the third generation. To properly provide for many future generations, it’s essential to have carefully drafted estate planning documents in place, and to update your family about those plans.
HOW AN ESTATE PLAN PROTECTS FAMILY WEALTH
An estate plan puts your intentions into writing. With the proper documentation, you can secure wealth and property for generations to come.
A trust can be a valuable tool when planning for the long term. Not only does a properly funded trust avoid the costly, time-consuming, and public court process known as probate, it also provides instructions for exactly what should happen to the money and property owned by the trust. An estate planning attorney can help you decide which type of trust best fits your wealth transfer goals and can instruct you on how to properly fund the trust. The trust instructions can lay out who will receive your money and property, how much this person or people will receive, and when they will receive it.
One type of trust you may want to use as part of your estate planning toolkit is a discretionary trust. Discretionary trusts allow the trustee (someone you appoint to administer the funds) to use their discretion to determine when and how much money and property to give beneficiaries. Because beneficiaries are not guaranteed a specific amount of money or a particular piece of property, the funds are better protected from any of the beneficiaries’ future creditors or former spouses and, consequently, preserved for subsequent beneficiaries. A discretionary trust can also foster educational opportunities, protect special needs beneficiaries, and minimize estate taxes at each generation. By choosing a trustee you believe will carry out your planning goals, you can ensure that your beneficiaries will be cared for without jeopardizing the wealth you have worked hard to build.
If you are concerned about your wealth lasting for future generations, lifetime giving can also be an effective solution. Although it may sound counterintuitive to give money to an individual who may not be financially savvy, a lifetime gift can allow you to counsel and guide the recipient on how to best use the money. In many cases, beneficiaries squander their inheritance because they do not know how to properly manage their money. A lifetime gift could be the means for teaching valuable lessons that promote long-lasting, multigenerational legacy planning.
COMMUNICATE WITH FUTURE GENERATIONS
In addition to a trust, you can write a letter to be shared with your loved ones. In your letter, you can carefully explain your goals and wishes and express your intentions in your own words without worrying about precise legal language. The information can alleviate the possibility of family fighting, explain why the money and property are being divided and distributed in a specific manner, describe your desire to benefit multiple generations with your estate plan, and provide a final lesson on how to successfully preserve the inheritance.
You should consider communicating the following information to your family to ensure that your loved ones are prepared to carry out your wishes during a difficult time:
A net worth statement, or, at minimum, a broad overview of your wealth
Estate planning documents that you have created and the purpose each document serves. Some estate planning documents that could help you meet your wealth transfer goals include:
Revocable living trust: avoids guardianship or conservatorship of your property during your life and avoids probate at death; keeps your final financial wishes private; minimizes delays, costs, and bureaucracy
Pour-over will or last will and testament: a catch-all for money and property not transferred into your revocable living trust or by beneficiary designation before death, or the primary means to transfer money and property in your sole name if you are not using a revocable living trust
Irrevocable life insurance trust: removes life insurance from your taxable estate; provides immediate access to cash for loved ones’ needs, administration costs, and taxes
Other advanced estate planning tools: protect money and property from creditors, predators, outside influences, and ex-spouses; enable charitable giving; minimize taxes; create dynasty trusts
Whom you have chosen to make decisions if you die, are incapacitated or are otherwise unable to make decisions while living. This could include agents named in your durable financial power of attorney and medical power of attorney, the successor trustee of your revocable living trust and any other trusts you have created, and the personal representative named in your last will and testament or pour-over will.
Your goals and intentions for inheritances: what the money is and is not to be used for (for example, education, charity, business opportunities, or retirement instead of vacations and Ferraris), and who will be the trustee of any lifetime discretionary trusts created for your family members and why you have selected them
Location of important documents: this should include how to access your digital assets such as social media, online bank accounts, and crypto assets
Your key advisors and their contact information: estate planning attorney, financial advisor, certified public accountant, insurance agent, etc.
HOW TO GET STARTED PROTECTING YOUR FAMILY WEALTH
Providing for multiple generations through your financial and estate plans is a significant legacy to leave your family. Ensuring that it is done properly requires careful planning with experienced professionals that understand legal nuances. A skilled estate planning attorney is well-positioned to help you discover your wealth priorities, goals, and objectives and then communicate that information to your family. This will prepare your family to receive your accounts and property and not be left to figure out your intentions on their own, which could, as statistics have shown, risk them losing it all.
Helping families is our passion. Schedule a consultation with us today by calling 614-389-9711 so we can discuss your wishes for the future and help you craft a plan that will benefit many generations to come.
How does wealth protection fit in with the rest of your estate plan? Download our Consumer's Guide to Estate Planning in Ohio here.
GREGORY S. DUPONT, ESTATE PLANNING ATTORNEY
Greg DuPont, JD, CFP®, is a well-respected estate attorney, financial advisor, public speaker, and published author. He has been serving clients as an estate and tax planning attorney since graduating from Capital University Law School in 1992 and added a wealth component to his practice over 15 years ago. He designed his firm to be the place where finance and law meet. He has been named one of Ohio’s Top 100 lawyers and was also recently named an Ohio Super Lawyer. Greg has been featured on WTVN radio and WCMH television. He is a life-long resident of Central Ohio and resides in Hilliard with his wife, Julia, and his daughter, Sophie.