Passing wealth from one generation to the next has taken place since the beginning of human civilization.
In modern times, this can be a much more complicated process, but there are also many more tools available that can make this easier and more beneficial for all parties involved.
In this article, we’ll look at the difference between intergenerational wealth transfer and estate planning, including why they are both so important for protecting wealth.
Money Is Often Lost As Moves Through Generations
The sad reality is that a majority of wealth is lost as it moves between the second and third generations of a family.
In fact, figures show that by the second generation, 70% of family wealth can be lost and by the third generation, up to 90% is lost.
So how does this happen?
Many financial planning experts point to poor wealth transfer plans and a lack of proper estate planning. Both of these are necessary to protect wealth and ensure that generations can enjoy its benefits.
Difference Between Intergenerational Wealth And Estate Planning
These two strategies are intertwined when it comes to generational wealth but there are differences to be aware of.
Estate planning is a blanket term for the tools and procedures that one uses to plan for asset and income protection while they are alive and the transfer of that wealth to beneficiaries when they die.
This means tools like trusts and wills as well as legal documents like a power of attorney and other means for carrying out the wishes of the deceased.
Wealth transfer plans have more to do with how those funds and assets are to be distributed in a way that best serves all parties involved.
As we described, most generational wealth is lost within a few generations. This is often due to the beneficiaries not being prepared for the wealth they received. It can also be the result of infighting among beneficiaries who only learn of the estate planning specifics when an individual dies.
Wealth transfer plans are tools and strategies that help alleviate these problems by preparing beneficiaries for the wealth transfer. The transfers are also done in a way that causes the least disruption to their lives and the family as a whole.
Some of this also lies beyond simple financial tools and instead involves communication while the estate holder is still alive. Communicating their wishes early so that any problems can be solved while they are alive is one example of this.
Creating A Wealth Transfer And Estate Plan
The key to protecting your wealth is working with a wealth management expert who understands the benefits and pitfalls of intergenerational wealth transfer. This experience will give them the tools and knowledge to help walk you through the process in a way that best serves your needs.
A wealth management expert who simply creates the documents and investment vehicles for your estate may not have the insight needed to determine if your estate is truly set up to protect and transfer your wealth for generations to come.
This is why choosing the right wealth management firm can be so critical, and it’s a decision to be taken rather seriously.
ICCNV is an award-winning financial advisor located in Nevada. Both the Wall Street Journal and Barron’s have recognized them as the #1 financial advisor in Nevada for 8 consecutive years.