Often referred to as the “Great Wealth Transfer,” studies show that roughly $84 trillion in assets amassed by baby boomers will change hands over the next 20 years¹. When examined more closely, a third of today’s high-net-worth individuals inherited their wealth.  According to the UBS Billionaire Ambitions Report, in 2023, more new billionaires were created by inherited wealth rather than entrepreneurship. This trend looks to continue in the years to come for many wealthy families (not just billionaires).

Wealthy families face the challenge of stewarding their financial futures in an environment of constant change, where markets fluctuate, tax laws evolve, and family dynamics shift.  Having a well-thought-out plan is crucial.

Multi-generational wealth planning is not merely about preserving wealth but nurturing it, allowing it to grow, and ensuring it becomes a beacon for future generations.

The Family Story: Building a Legacy

Every family has a collection of stories – tales of where they have come from, hardships they have overcome, and dreams they pursued – all woven together in a rich tapestry that informs and shapes the generations that follow.

The journey of multi-generational wealth is not just about numbers on a balance sheet; it’s about the stories behind those numbers and the values and dreams embedded in each.

For many families, the journey to wealth is akin to the immigrant experience.  Starting from humble beginnings, motivated to action by an innovative idea and entrepreneurial spirit, enduring decades of hard work and sacrifices, and turning dreams of a better future for the next generation into a reality. 

Much like the immigrant experience, the journey to wealth impacts generations differently – from the first generation who acquire wealth to the generations that follow and are born into it.

Multi-generational wealth planning is an opportunity to reflect on your family’s journey, explore the narratives that shaped your family’s financial identity, and embrace the values that will perpetuate this legacy.

The Challenges of Passing the Torch

Building wealth is a remarkable journey that requires resilience and foresight. However, a whole new set of obstacles arises when it comes to passing it on to the next generation. There are two specific obstacles that we find are consistent across all families.

First, from a more technical standpoint, taxes and legal considerations often loom large during multi-generational wealth transfers.

• The tax code is complex and ever-changing, and substantial portions of the family’s wealth can be eroded without a strategic plan. From estate taxes to capital gains, each aspect demands careful attention and regular monitoring.
• Legal structures play a pivotal role in wealth preservation. Wills, trusts, and other instruments shape the destiny of assets. Understanding how these legal frameworks interact with tax regulations is paramount for a smooth wealth transition to the next generation.

Second, a less technical but equally important obstacle that many families face as they grapple with multi-generational wealth planning is how to communicate financial goals and long-term vision to future generations.

• Talking about money can be challenging, and many families are reluctant to discuss financial matters.
• The multi-generational wealth planning process should encourage an open dialogue in which every family member feels heard and valued and can address their concerns openly.
• When family members are informed and engaged, the wealth transfer process can be a collaborative effort rather than a source of contention.

Educating the Next Generation

The success of multi-generational wealth transfer lies in empowering the next generation and encouraging a sense of ownership and involvement in financial decision-making.

Exposing them to basic financial knowledge – budgeting, saving, and investing – can help demystify financial concepts and equip them with the skills needed to navigate the complexities of wealth management and responsible stewardship. When the basic becomes complex however, then may be the time to introduce the broader family to your trusted financial knowledge centers like an advisor.

Instilling in the next generation a sense of responsibility toward the family’s legacy involves understanding not only the mechanics of wealth but also appreciating the values that underpin it. 

By involving the younger members in discussions about investments, philanthropy, and long-term goals, you can help ensure they are equipped to preserve and grow the wealth earlier generations worked so hard to accumulate.

The Role of a Trusted Financial Advisor

While family discussions and financial literacy lay the foundation for multi-generational wealth planning, the expertise of a seasoned professional becomes instrumental in translating aspirations into actionable plans.

A financial advisor brings a wealth of knowledge, experience, and objectivity to the table. They analyze your family’s unique situation, identify potential challenges, and craft strategies that align with your goals. Their role extends beyond number crunching; they become partners in preserving the family’s legacy.

Look for an advisor who will take the time to understand your family dynamics, facilitate open communication, respect your family’s values, and tailor their approach to align with your aspirations.

Final Thoughts

Embarking on the journey of multi-generational wealth planning is a commitment to your family’s enduring legacy – not just financial figures but the stories, values, and lessons learned along the way.

Successful wealth transition requires overcoming the complexities of the transition process, mitigating taxes and legal issues, embracing open communication, and preparing the next generation.

As you reflect on your aspirations for transitioning wealth in the future, seek expert guidance. SWP’s advisors are experienced in creating tailored wealth plans that encapsulate your unique needs, aspirations, and values.  Please contact us to get started.

¹ ML, Will the ‘Great Wealth Transfer’ transform the markets? (Link)

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