Handing Down Wealth: How to keep money in the family.

Generally, wealth is defined as possessing a beneficial abundance, be it money, health, or happiness. Different people and cultures may prioritize each of these differently, but many would argue it’s great to have all three. As your credit union, we won’t presume to tell you how to cultivate happiness or maintain your health, but it is our mission to help you achieve your financial goals. In that spirit, we want to share some tips on how to pass your wealth on to your family, so they too can achieve financial success.

Current demographics and economic conditions make this an especially important topic for today’s families. Experts estimate that over the next twenty years, baby boomers and their elders in the Silent Generation will drive the largest transfer of wealth the modern world has ever seen, bequeathing as much as $84.4 trillion in assets, with as much as $72.6 trillion of that figure handed down to their heirs, according to a widely cited study by Cerulli and Associates.

That’s an amount of money that can change lives as well as legacies, but success depends on two things: planning and communication. Talking about these matters can be fraught, but experts agree it is imperative that family members sit down and have conversations about these matters because everyone’s health and well-being are at stake. Depending on your situation and goals, we recommend talking with a wealth advisor or financial planner to review your options and formulate a plan.

Whether you are the one with wealth to pass down, or want to have a conversation with your parents or grandparents about what they plan to do with theirs, here are some important strategic moves:

1. Estate Planning

Wills and Trusts: Create a comprehensive will and consider setting up trusts to manage and distribute assets according to your wishes. There are many kinds of trusts, most of which create paths to pass on assets with minimal impact and familial friction. Living Trusts can help avoid probate and ensure a smoother transfer of assets, while Generation-Skipping Trusts are designed to pass wealth directly to grandchildren, skipping the immediate next generation to reduce estate taxes. Do some research to learn about the various kinds of trusts that are best suited to your family’s situation and goals.

2. Tax Planning

Gift Tax Exemptions: Utilize annual gift tax exemptions to transfer wealth without incurring taxes- currently up to $18,000 can be gifted to relatives tax-free every year. 529 plans help pay education expenses for future generations while benefiting from tax advantages. Charitable  giving via charitable remainder trusts (CRTs) or donor-advised funds (DAFs) support causes while reducing tax liabilities.

3. Investment Strategies

Use a diversification strategy with your investments by spreading them across various asset classes to reduce risk. Maintain a long-term focus, investing with a long-term perspective to benefit from compound growth. Open and fund Roth IRAs for each of your children as early as possible. Create a family investment partnership as a vehicle to pool family resources into a single investment entity to manage and grow wealth collectively.

4. Family Governance and Education

Hold regular family meetings to discuss financial goals, values, and responsibilities. Educate family members about financial management, investment principles, and the importance of preserving wealth. Employ financial advisors, estate planners, and attorneys to provide expert advice and management. Share your knowledge, listen to the concerns and hopes of other family members, and look for answers that can benefit everyone.

5. Insurance and Protection

Life Insurance provides financial security for future generations through life insurance policies. Liability insurance protects assets from potential lawsuits and claims. Business Succession Plans ensure a smooth transition of family-owned businesses through detailed succession plans.

6. Philanthropy

Establishing a family foundation to manage charitable giving and instill a sense of responsibility and legacy in future generations. Encourage family members to participate in philanthropic activities and community involvement to foster a culture of giving back.

7. Legal Structures

Consult experts on the value and benefits of Family Limited Partnerships (FLPs), which can offer control over assets while providing tax benefits, and Limited Liability Companies (LLCs), which can protect personal assets and provide flexibility in managing family investments.

8. Stay Up to Date

Periodically review and update estate plans, trusts, and investment strategies to reflect changes in laws, family circumstances, and financial goals. By employing a combination of these strategies, you can help ensure that your wealth is effectively preserved and passed down through the generations.