I’m a Lawyer: Here’s How to Better Manage Generational Wealth Transfers

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Leaving an inheritance for your children, grandchildren or other family members can be a wonderful gift, but without proper planning, generational wealth transfers can be messy.

“Generational wealth is something that families go to great lengths to preserve and grow over time. But this can often become problematic if not handled properly,” said Derek Jacques, attorney at The Mitten Law Firm.

An easy assumption, for example, about the problems with generational wealth transfers is to presume that the younger, inheriting generations might waste the opportunity that an inheritance provides, or becoming spoiled. While that’s possible, that’s not necessarily the main problem when it comes to generational wealth transfers.

“I think the usual tropes about younger generations squandering the wealth of the family are largely incorrect,” said Jacques. “However, I do see families make mistakes when it comes to not even having basic estate planning documents in place, such as a will, or durable power of attorney.”

A last will and testament can specify things like how you want your assets divided among family members, philanthropic organizations or any other distribution you wish. A durable power of attorney form can also be important, as completing this can give another person you trust the power to make financial and medical decisions on your behalf if you become unable to do so via medical or mental incapacitated.

The Importance of Estate Planning

Estate planning may not sound pleasant or exciting, but it’s important to have the right documents in place to ensure a smooth transfer of assets, whether you have millions of dollars to pass on, or you want to leave a more modest inheritance.

The lack of estate planning primarily comes down to two issues, per Jacques: “The first being that many don’t think they have enough assets to leave to their heirs, and another is a discomfort with thinking about and planning for death.” Indeed, less than half of Americans have a will, according to Gallup. While the percentage is much higher for those 65 years of age and above — 76% have a will — you never know when an unexpected event like an accident may occur, so it can be good to prepare earlier.

Without proper estate planning, figuring out how to divide assets among family members can get complicated, even litigious. “Many issues can come up when a will or other estate planning documents are not in place. For one, there are bound to be legal challenges, and without official documentation of your final wishes, these challenges can be left to interpretation by the courts,” Jacques said.

“If you look at the legal wrangling that has occurred with the estate of Prince, for example, you can see the kind of chaos a lack of estate planning can cause,” he added. That case took over six years to resolve following the musician’s untimely death.

Not only can that be time-consuming, but a lack of estate planning can get expensive.

“Other problems could include costs eating away at inheritance money, as lawyers would need to be paid to handle the court challenges in probate,” Jacques explained. “By having your trust, or at least your will, created and in place, you can avoid much of the fighting and hurt feelings associated with losing loved ones. By creating a trust, you can avoid the probate process which is cumbersome and occasionally unfair. But at minimum, a will can help spell out your wishes with regard to assets and how you want them bequeathed.”

Keep Up With Your Estate Planning

While having some estate planning documents in place, like a will, is generally better than not having anything ready at all, it’s important to keep up with your estate planning over time.

“Was a new child born? Did anyone buy or sell a house? These are all things that need to be updated in an estate plan,” said Jacques.

And to successfully transfer wealth between generations, consider what you want your money to go towards, as not everyone prefers to leave a lump sum of cash. Instead, you may wish to leave money to heirs for more specific uses. Your preferences might also change over time, in which case you may need to update your estate planning documents.

“If your family has a business, investing some of the wealth back into the business in order to sustain and grow it is one option. You can also set up educational trusts for your grandchildren as a way to ensure they receive the money they need for college,” said Jacques. “I always say to think about things that will benefit your heirs and grow the generational wealth as opposed to simply passing it along.”

To do that, however, it helps to have the right estate planning documents in place.

Share This Article: