Don’t Make These 5 Mistakes When Passing Down Generational Wealth to Your Family

Happy senior woman enjoying in daughter's affection on Mother's day.
Drazen Zigic / Getty Images/iStockphoto

Many Americans (and their children) count on the transfer of generational wealth. What exactly is the transfer of generational wealth? It’s the passing down of any kind of asset(s) from one generation to the next. This can include not only cash and real estate, but also investment funds, stocks, bonds or even a business. According to research from Cerulli Associates, roughly $84 trillion will be passed down from today’s older generations to their heirs by 2045.

What could go wrong with this transfer of generational wealth? Several things, in fact. Here are 5 mistakes one planning on passing down their assets should avoid in the process.

Failing To Prepare Heirs for Their Inheritance

If your children and/or other heirs are not prepared for a transfer of wealth, things can go awry.

Give those who will receive your legacy exposure to how a possible windfall will change things for them, and begin personal finance training for kids as early as possible.

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Failing To Teach Kids How To Make it On Their Own

The opposite problem can also occur: over training one’s kids to expect a heap of assets when one passes away. It’s critical that your kids/heirs don’t become too reliant on a forthcoming inheritance. Such grand expectations may get in the way of their personal and professional growth, and could ultimately hinder a successful financial trajectory in their lifetimes.

Not Investing or Failing To Diversify One’s Portfolio

When was the last time you upped your 401(k) contributions? When did you last diversify your portfolio? Not staying on top of the ball here, can, as Chris Alarcon of Financially Well Off noted, be a big mistake. You may overestimate the value of your wealth, or stick your heirs with an investment portfolio that is failing to deliver.

Not Involving Kids in the Family Business

If you’re passing down a family business, consider the importance, as Alarcon highlighted, of getting your kids fully in the know of how the business operates — and what its financial needs and goals are. If your heirs are just thrown into managing a business, without thoroughly understanding it, there’s a good chance they’ll have a rocky transition and could potentially even tank your hard work.

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Not Writing a Will or Trust

Alarcon emphasizes the importance of securing a will and trust well before you think you’ll die. If you fail to do this, your heirs will likely end up in probate court and it could be years before they receive the assets you want them to inherit. Don’t procrastinate taking these proactive and necessary steps.

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