How To Plan For A Wealth Transfer

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Andres Garcia-Amaya is CEO and Founder of Zoe Financial, whose mission is empowering people to make better financial decisions.

By 2030, it is estimated that Millennials will inherit over $68 trillion from their Baby Boomer relatives. Baby Boomers are thought to be the wealthiest generation in history, which explains why this soon-to-come wealth transference is so impactful.

Getting Started

If you expect you will be leaving money or assets to your family members, it is paramount you prepare in advance. Clear communication can help you have a successful wealth transfer. It can be uncomfortable to discuss finances with family members. Needless to say, adding death to the discussion makes it even more awkward. Although it can be difficult, a candid conversation is the only way to ensure everyone is on the same page. 

Working closely with an experienced financial adviser is another way to set yourself up for a successful wealth transfer. Your adviser will make sure you have a plan that fulfills your goals for your family and estate. To begin planning, work with your adviser to analyze your cash flow, assets and living expenses. This will help you determine how much you can save and leave to your family members after your living expenses are covered. 

It is also important to develop a clear vision for the future of your wealth and assets. You need to create a plan of who’ll receive your wealth, when they’ll receive it and how you would like them to receive it. For example, if there is a cause you’d like to support, you may want to leave a portion of your wealth to a specific charity. If you would like to contribute to your grandchildren’s education, you may prefer to leave money in an education account, rather than passing on a lump sum of cash.

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Record Your Assets And Beneficiaries

Once you’ve established a clear vision for your wealth, take the time to list all of your assets and their value, and designate a beneficiary for each asset that will be passed down. These assets may include financial accounts, investment shares, real estate and retirement savings. It’s important to make sure every asset is accounted for to avoid future disputes. Additionally, if there are any liabilities you are responsible for, such as a mortgage or debt, there should be clear designations.

One of the biggest mistakes people make is assuming that all of their accounts will be passed on to whomever their will designates. However, many retirement accounts, such as a 401(k) plan, will only pass down the money to the beneficiary designated in the account’s plan, regardless of what a will says. Your financial adviser can make sure these issues are planned for and handled so your assets are properly accounted for. 

Once you have assigned a beneficiary for each of your assets, communicate thoughtfully with your family so they are aware of your plan and intentions for your wealth and estate. You should also frequently review your plan and your beneficiary designations to make sure they are always up to date. 

Legal Documentation

It can also be extremely beneficial to work with a lawyer to ensure all of your legal documents are in order. To begin, be sure you have copies of beneficiary designations for all of your financial accounts, retirement accounts and any other assets. After that, review your updated will. It is not uncommon for people to lose touch with individuals throughout their life, so ensure the executor of your will is someone you still have a close trusting relationship with.

Aside from a will, you may want to set up a trust. A trust allows you to establish specific instructions on how and when a specific asset will be passed to the beneficiary. This helps you control when a beneficiary will be able to gain access to their inheritance and is useful when the beneficiary is too young to responsibly handle their inheritance.

Advice For Beneficiaries 

While inheriting a large amount of money may be nice, managing it can be difficult. If you know you are going to be receiving an inheritance in the future, you can begin planning to make sure you use the inherited money to benefit your financial future. Money that is passed down can be subject to significant tax laws, so working closely with a financial adviser can make sure you are aware of any taxes and fees the money may be subject to, and you can plan accordingly. Together, you can create a plan so that when the money comes, you already know exactly what to do with it to ensure your family’s wealth lasts as long as possible. 

Whether you are going to be giving or receiving an inheritance, the importance of a thought-out plan cannot be overstated. Working with a qualified, experienced financial adviser can help you make sure your plan covers all the bases and sets you and your family up for success. Above all, invest time to discuss your plan with your family so everyone is on the same page to ensure your wealth transfer goes as smoothly as possible.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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