Why Your Wealth May Not Get to Your Heirs

Portrait of family keeping their hands one another at home

It was called the Great Wealth Transfer, the World War II generation passing its wealth to their kids, the Baby Boomers. Well, it’s about to happen again. Cerulli Associates, a financial industry analysis company, estimates that during the next 25 years $68 trillion will be passed on to the next generations and to charitable organizations.

Unfortunately, there are some common mistakes that can keep a family legacy from reaching the people you want to benefit from your lifetime of hard work. Here are four of those mistakes.


Failure to admit you’re mortal

Some people don’t want to admit they’ll die. I had a retired Marine Colonel client who saw combat in World War II, Korea, and Viet Nam. He faced death and saw other people die. But in his older years, he resisted any type of financial planning because he didn’t want to admit he would someday expire. It was only after he received a terminal diagnosis that he agreed to put things in order, which took care of his heirs.

A legacy plan is about more than just where the money goes. It should also include family heirlooms, specific bequests to charities, and if a family business is involved, a well-thought-out plan that passes it on and eliminates as many hurdles and roadblocks as possible. If a legacy plan is created early enough, that plan should be reviewed regularly.


Lack of communication

When you create a legacy plan, you don’t want it to be your little secret that gets sprung on everyone after you’re gone. Tell your heirs ahead of time exactly how your estate will be distributed, who gets what, and if any of the assets will go to charity. You want to eliminate, as much as possible, anything that will create animosity, ill will, or family fights. Those things are hard to repair, and in some cases, may never be fixed.

In the old movie McClintock, John Wayne is a wealthy rancher. He tells his daughter that she won’t inherit everything. He’s very specific about what she’ll receive and how much will go to charity. There was no lack of communication.


Lack of preparation

Who’s going to be involved in transferring your wealth? If you want family members to be part of the process you need to talk to them ahead of time. Some family members may not want to be involved. If they get thrust into positions of responsibility after your death and they don’t want to assume that position or don’t have the ability to fill the role, it can create hurt feelings, but also make the transfer process much more difficult than it has to be.


Overlooking the impact on your heirs

It’s not enough to distribute your estate to the ones you love. You need to consider the impact on them. Will there be tax consequences to them because of what they receive? Will they be required to drain certain accounts in a number of years, as in the case of inherited IRAs? Are there any legal issues that will come up as a result of your financial legacy to them? These are questions you need to answer as you create your legacy plan.

The best solution is to build a team of specialists who know about taxes, investments, and estate law. Your team will help you create a legacy plan and make changes to it as laws and regulations change or if you decide to change the way you want your estate distributed.


This article is presented as information only and should not be considered tax or legal advice.


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