5 Steps for Navigating Intergenerational Wealth Transfer

5 Steps for Navigating Intergenerational Wealth Transfer

October is estate planning month here at Financial Planning Fort Collins. If you’ve had “Complete necessary estate planning documents” on your to-do list — or RightCapital task list — for a while, consider this your nudge to schedule your estate planning consultation!

If you completed your plan over the last couple of years, now might be the perfect time to check in on your beneficiaries. In fact, this might be an especially nice time to review the flow of your assets now that the transition to Charles Schwab is complete. And if it’s been five years or more since you created or last completed an in-depth review of those documents, this is your chance to get into it.

Maybe you’re on top of it. (Pat yourself on the back!) You know exactly what you have and where you want your financial assets to go upon your death. Your primary and contingent beneficiaries are named precisely according to your wishes. And you’re sure that your estate planning documents identify those people or charities exactly to cover any directions that don’t already supersede your will. You get bonus points, too, because you know where your physical assets are going. Intestate just won’t do for you!

You’ve even communicated with your beneficiaries to let them know what they can expect when you pass. Your children know what they can look to inherit, and so do your friends and other family members. Plus, you strategized what’s going to your favorite charities and nonprofits for tax efficiency. Your estate plan is solid.

What about your parents?

Have your parents shared with you what you should know about their estate plans and inheritance planning? If not, this article is for you.

That’s because, if you have children and you’ve done your own estate planning work and communicated it, they likely know all about how they’ll inherit your wealth — or not — and they’re able to plan their own financial lives accordingly. But if your parents are living and they haven’t communicated their plans with you, you may be overstating or completely missing a big piece of your own financial plan.

Say you’re planning on — or even counting on — receiving an inheritance … but it turns out that your parents made plans to donate their assets to charity. Maybe they haven’t made contingency plans for passing their wealth along: While they’d like to make sure what they’ve accumulated goes to the next generation of the family (i.e., you), it’s looking like they’ll need to self-insure a long-term care need. Perhaps they’re healthy and are likely to live much longer — and spend much more during those extra years — than they were expecting.

Your inheritance might be smaller than you expected … or end up not being an inheritance at all. If you’re including being a beneficiary in your financial plan but it doesn’t pan out, where will that leave you?

On the flip side, perhaps you’re not planning to receive anything because you don’t think your parents have much to give … but it turns out they do. Or they’ve told you that they’re giving it all to charity, which is indeed in their wills, but their accounts name their children as beneficiaries.

If you’re not prepared to receive an inheritance or aren’t sure of the amount, how would that impact you as you deal with losing one or both of your parents?

We’ve all heard stories of the estranged aunt or uncle passing assets to a niece or nephew who didn’t know they existed upon their passing. But not everyone is Mr. Deeds!

In any case, the best way to navigate intergenerational wealth transfer is to have a plan and communicate it. But when it’s not your plan, how can you prepare? The easiest way is often to start with those with whom you’re closest: Your family. If your parents are living and you haven’t discussed their estate plans with them, here’s where you can begin.

5 Steps to Navigating Intergenerational Wealth Transfer

1. The first step in helping your parents with estate planning is initiating an open and respectful conversation about their wishes. This can include discussions about wills, trusts, powers of attorney, and healthcare directives. Approach the topic with sensitivity, emphasizing that your goal is to ensure their comfort and security.

2. Work together to compile a comprehensive list of your parents’ assets, such as bank accounts, investments, real estate, and personal property, as well as any outstanding debts or liabilities. Understanding their financial picture is crucial for proper planning.

3. Ask them if they’d like to make any gifts now or in the near future. Compared to a bequest upon death, they can see their recipients enjoy their gifts when given during life.

4. Review beneficiary designations on their accounts and insurance policies with them. Ensure that these reflect their current wishes and align with their estate planning goals.

5. Encourage your parents to work with an estate planning attorney to draft or update essential documents like wills and trusts. While you can assist them in creating and notarizing many other estate planning documents, these are very likely to require the expertise of an attorney. Make sure these documents are complete, enforceable, and readily accessible when needed.

From financial assets to real estate and the family business to sentimental items and heirlooms, having a plan for who will receive what is key. Knowing what exists, where it’s at, and where it’s going can offer you and your family peace of mind.

That said, navigating intergenerational wealth transfer can be a complex journey. As you embark on yours or assist your parents with theirs, remember that every family’s situation is unique. It’s crucial to work with experienced professionals, such as your financial planner and estate planning attorney, to tailor a plan that aligns with your goals and values. By taking proactive steps today, you can pave the way for a brighter and more secure financial future for both your parents and your own generation.