Lottery winners who go broke, you've heard the stories. You read about it, and it's hard to fathom how that could happen. We can dive into that topic in a different post but successfully transferring wealth across generations (or trouble doing it) is an equally challenging concept to grasp.
Too frequently, family wealth fails to last. Let's take a look at a few reasons why this happens.
This article is for informational purposes only and is not a replacement for real-life advice. Consult legal and tax professionals before modifying your overall estate strategy.
"Putting it off" – This can be a combination of both, not starting a wealth transfer plan and not acknowledging weaknesses in your current plan.
These "weaknesses" could be something straightforward too. Imagine there is a multimillionaire named Valerie. Valerie's husband was her primary beneficiary on her large savings account, but he passed away three years ago. She realizes the need to name another beneficiary, but she never gets around to it. It slips her mind right after the death, understandably, but it never gets brought up again.
It may seem mundane, but it can cause significant headaches for those left behind. For example, not having a payable-on-death (POD) beneficiary can leave assets subject to probate. Using our example above, Valerie's heirs may discover other accounts that require attention. Another wrinkle that can cause chaos is the blending of families, which is much more common nowadays. A good rule to follow is to update your plan whenever there is a life change, this way; you will hopefully not overlook necessary steps.
Lack of Management:
Every year, some multimillionaires die without instructions for distributing their wealth. These people are not just rock stars and actors but also small business owners and entrepreneurs. According to a recent Caring.com survey, 58% of Americans have no estate preparations. This includes even your basic will.
Side note, having only a will may not be enough.
Being reliant on a just a will brings probate into the picture, which can be tough to navigate. The multimillionaire who has a child with special needs, a family history of Alzheimer's, or a former spouse or estranged children may need more estate management. If they want to endow charities or give grandkids an excellent start in life, the same idea applies. Business ownership calls for coordinated estate management with consideration for business succession.
A well-designed estate strategy has the potential to enhance family wealth for decades and perhaps, generations. Without it, heirs may have to deal with probate and/or the loss of potential for tax-advantaged growth and compounding of their assets.
Not having a "family office."
Even if you don't have the traditional office, you want a "staff" of handpicked financial professionals who supervise your financial life. Specific wealth management firms emulate this model. The goal is to work as a cohesive unit in an ongoing relationship distinguished by personal and responsive service. They consult families about investments, provide reports, and assist in decision-making. When your financial picture gets too complex to address on your own, this could be a wise choice for your family. Not just your generation but the ones to come as well. LPL financial advisors do not provide "family office" services.
Lack of Technological Security:
Hackers look to exploit anything they can. They'll try to hijack email and social media accounts and send fake messages to banks, brokerages, and financial professionals to authorize asset transfers. While social media can help you build your business, it can also expose you to identity thieves seeking to steal digital and tangible assets. Be sure to safeguard your information.
No long-term strategy:
If you hope to sustain wealth for decades to come, your heirs will want to be on the same page as you. Open dialogue with your family leads to a clear understanding of your strategy; this way, it can be continued long term. Transparency is key. Without it, there tends to be no decision-making process. Typically, heirs become decision-makers when the elders pass away. Like a good succession plan for a business, your wealth should also have one.
Group decision-making can help multiple generations commit to the guidance of family wealth. Financial professionals can help a family make these decisions with an awareness of different communication styles. In-depth conversations are essential; good estate managers recognize that silence does not necessarily mean agreement.
It is never too early to begin. Nobody comes to us and says, "I wish I started planning later in life," which is especially true when it is about the best way to pass their wealth to their heirs. So reach out to us and take the first step today.