The Great Wealth Transfer is already underway, with trillions of dollars expected to pass from one generation to the next over the coming decades.
But most Americans spend more time planning a family vacation than working on their personal finances, and the amount of time they spend on their wealth transfer is even less.
In my experience, this oversight can have lasting consequences. Here are the biggest estate planning mistakes I try to help my clients avoid.
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Not preparing your heirs
Wealth is a powerful tool for creating a legacy. But if you’re assuming it will be a wonderful windfall that sets your family up for success after you die, you may be unpleasantly surprised. According to research from the Williams Group, 70% of wealthy families lose their wealth by the second generation, and 90% lose it by the third.
I’ve found that heirs are often better prepared for wealth when they develop accomplishments and confidence that are independent of family wealth. The goal isn’t to make life difficult for your children, but to help them build the skills and judgment they’ll need to manage opportunities responsibly.
Unfortunately, more than half of parents ages 55 and older surveyed by Morning Consult for Kiplinger say they rarely or never discuss money with their children.
That’s why I encourage families to hold regular conversations about the purpose of their wealth. This doesn’t have to mean disclosing every dollar. It’s about helping the next generation understand how wealth was created, what responsibilities come with it and what role it should play in their lives.
The biggest gift you can leave for the next generation is clarity and financial confidence, and you can’t do that if you don’t talk to them.
You shouldn’t be the only one talking to your children about money, however. It’s hard to be a prophet in your own land, and one lesson I’ve learned as an adviser and parent is that children don’t always take advice from those closest to them.
Sometimes they’ll hear the exact same message from a trusted mentor, adviser or family friend and view it completely differently. Create opportunities for younger generations to learn from people who have good judgment and strong values.
Failing to formalize your plan
Legal processes need to be followed to ensure assets are transferred the way you want. It’s always shocking to me how so few people have a will or trust. A Guardian study found that about half of high-net-worth individuals don’t currently have a will.
I’ve seen estate disputes strain family relationships for years. In some cases, siblings stop speaking to one another because expectations were never clearly documented or communicated. If you’ve spent a lifetime building wealth, take the time to preserve family harmony by ensuring everyone understands your intentions before difficult questions arise.
Not protecting your wealth
A will or trust determines where assets go. Asset protection helps ensure they’re still there when the time comes to transfer them. In this litigious world, asset protection is essential to protect people from lawsuit creditors and anyone else trying to separate you from your money.
Unexpected legal claims or liabilities could reduce the wealth you’re hoping to pass on. I often tell clients they need a moat around their castle. I’ve seen many people’s life’s work wiped out by a judgment, regulatory issue or divorce.
Irrevocable trusts are a way to protect your assets. These types of trusts can shield your assets from lawsuits. Depending on your circumstances, they may also be able to lower your estate and income taxes.
Waiting until you’re gone to make an impact
Many people assume wealth transfer is something that happens after they die. In reality, some of the most meaningful transfers happen while you’re still alive to experience the benefits firsthand.
I’ve seen such joy in parents and grandparents when they get to see how their money benefits their offspring. It’s also incredible to be so fortunate that you can give your money to places and causes you believe in and be able to see its impact while you’re alive. This is why I encourage some of my clients to not wait until they’re gone to give.
People are living longer these days. If you’re 99 when you pass, your kids may be in their 70s and already retired. But in their 30s, 40s and 50s, your kids may be starting families, buying houses, building businesses and putting their kids through school. Transferring money at this point can provide far greater value.
Focusing on the “how” before the “who”
Everybody asks “how?” I think the better question is “who?”
- Who are the advisers helping you make estate planning decisions?
- Who is educating the next generation?
- Who is collaborating to help ensure every piece of your plan works together?
Transferring wealth requires a team, and the quality of your team determines the quality of your outcomes. I like to call this your “kitchen cabinet,” meaning the group of people you trust enough to give you the right advice when you need it most.
You don’t want five great professionals working independently. You want the right professionals working together. The families who navigate these transitions most successfully tend to have financial advisers, attorneys and tax professionals operating as a coordinated team.
Wealth transfer is about far more than passing down assets. It’s about passing down opportunities, values and a vision for the future. With thoughtful planning, open communication and the right team of professionals guiding the process, your wealth can become a lasting legacy that benefits generations to come.
In my experience, the families that transfer wealth most successfully treat inheritance as a conversation, not an event.
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