According to several studies, nearly three-quarters of multi-generational wealth transfers aren’t successful. In the process of passing your assets to your grandchildren and beyond, your intentions as the benefactor aren’t met. After working throughout your life to build and preserve your wealth, you want to know that your grandchildren will use the assets they inherit in a suitable manner.
Although you can’t guarantee the legacy you intend, following a few steps with your grandchildren for the wealth transfer can help prepare them for their new responsibilities.
1. Have a Financial Plan
First and foremost, you need a solid foundation that can help set your grandchildren up for success. Make sure your estate plan is up-to-date and that it clearly defines your intentions. Your grandkids should have the contact information for your attorney, accountant, and financial advisor, should they have questions or require clarification.
Along with your financial plan, you may want to work with your advisor to create one for your grandkids to help them manage their wealth post-transfer. Keep your financial plan and estate plan in a safe place so all documents are easily accessible when needed.
2. Spend with C.A.R.E.
Along with putting a financial plan in place, you want to make sure you aren’t overspending. This is a big concern for many retirees, as they need to balance their lifestyle needs with their legacy desires.
Consider other wealth planning opportunities for reviewing your income and spending, such as FLP Financial’s Spend with C.A.R.E. program. This program is designed to capture and categorize your expenses, analyze and make you aware of them, and help you realign and executive a spending plan that is congruent with your true wealth plan.
3. Avoid Surprises and Set Expectations
Known as “inheritance etiquette,” it’s a good idea to communicate your financial and estate planning goals with your grandchildren. This can address potentially uncomfortable situations that may emerge, such as who is chosen as the executor of your estate, who inherits the family business, etc.
While it can feel awkward to share with your grandkids what you’re leaving them, communication is essential for a successful legacy transfer. The biggest reason is that it prepares them for reality. Too often, people assume they’re inheriting more than they actually are. They may become complacent and wait out for the wealth they believe is coming.
4. Develop a Family “Mission Statement”
Just as successful businesses run effectively according to a mission everyone embraces, so can a family. A mission statement helps you articulate your values and the things that are most important to you in life. Having an outlined statement can help you develop financial and estate planning goals that align with your family values and ideals.
Create your mission statement with your family. Collaborate to identify and define your viewpoints and desires. Getting your grandkids to contribute to the decision-making process will help keep them invested in your family’s mission statement and goals. And the more your grandkids know about your financial position. Philosophy, and goals, the more inclined they’ll be to carry on the family legacy.
5. Hold an Annual Family Meeting
Along with creating a family mission statement, it can be helpful to meet annually as a family to discuss family wealth and legacy expectations. While some families will hold retreats or vacation, your meeting can be as informal as a coffee date or BBQ at home.
Talking as a group and on a regular basis helps instill your family values and what you hope to accomplish with the family legacy. And when you’re respectful of each family member’s opinions and objectives, you can build stronger trust, which is essential for a successful wealth transfer.
6. Alleviate Pressures Concerning Debt
People of all ages are concerned about debt. Your grandchildren likely face student loan debts, and you may still be paying off your mortgage. In the process of talking about your plans for your wealth, debt is an important topic to discuss.
Regardless of whether you choose to share the explicit details of your estate plan, speak with your grandkids about a plan for any debts you have and how your wealth transfer may or may not resolve it. In your estate plan, you may outline which accounts or assets will be used to pay off your mortgage and any other bills or funeral plans. This helps alleviate the pressures they face when it comes time for the transfer.
7. Teach Your Grandkids About Investing As Early as Possible
The more your grandkids understand investing and saving the more likely they are to take an interest in building and preserving wealth for the long-term rather than fulfill short-term desires. It can be helpful to teach them what you’ve learned about managing money, including any mistakes you made at a young age.
Showing them the powers of compound interest and investing can also help your grandkids understand the benefits of savvy wealth management. Tie in the conversation of charitable giving and how money can be used for more than just purchases; it can also benefit people in need. Remember, education is key for making informed financial decisions.
8. Give Your Grandkids a Financial Test
If you aren’t sure how your grandkids may handle a significant wealth transfer, consider putting them to the test by gifting them a smaller amount of money and seeing how they use it. Per 2016 rules, you can gift up to $14,000 individually or, if married, $28,000 each year to someone without facing gift taxes.
Instead of telling them it’s a test, you may gift it to them on their birthday and then see what they do. Will they invest it? Put it in the bank and let it sit? Take a trip to Europe? You can gauge their financial priorities and if they’re ready to receive and responsibly use their inheritance.
Next Steps
If you aren’t an advisor yourself, it can be difficult approaching wealth management and legacy planning. If you aren’t sure how to approach the topic — or just want support from an objective professional — consider enlisting the help of a financial advisor. A financial advisor’s role is to be an unbiased resource who provides a family trusted counsel. He or she can assist you with these steps to prepare your grandkids for their inheritance.
Along with putting these tips into action, download our whitepaper, “Cross-Generational Financial Planning,” which is designed to help you connect with your Millennial heirs and understand the financial challenges, beliefs, and values they face.
