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Four Common Reasons Family Wealth Transfers Fail

Avoid These Common Pitfalls for a Successful Wealth Transfer
Kathy Longo, CFP®, CAP®, CDFA Tuesday, 05 April 2022

Four Common Reasons Family Wealth Transfers Fail

The United States is in the midst of a massive wealth transfer from Baby Boomers to Gen Xers and Millennials – to the tune of $68 trillion – with Gen Xers set to be the primary beneficiaries of this transfer. With that much money on the line, it’s crucial that the transition of these assets is done thoughtfully, with deliberate and careful planning ahead of time. Regardless of the size of your family’s portfolio, having a smart wealth transfer plan in place should be an essential part of your financial plan.

A legacy plan ensures that all of your hard-earned assets will transfer to people and organizations in accordance with your wishes, and it prepares your heirs to inherit and execute your wishes, too. This can be a complicated process, and it’s easy to make mistakes. Here are four common missteps that you should keep in mind as you put together a wealth transfer plan for your family.

Misstep #1: Lack of Planning

It can be disconcerting – even depressing – to sit down and talk seriously about what you want to happen when you die. Because of this, people tend to put off necessary planning. However, we never know how much time we have left, and you cannot be sure that your goals and wishes will be honored if you die before you put a plan into place.

The best course of action when it comes to legacy planning is to put a plan in place sooner rather than later. That way, you know you’re prepared no matter what happens. It’s also smart to revisit your plan regularly as it should evolve as you experience life changes and transitions. A good legacy plan should be rooted in what you envision for your family today, but with the flexibility to accommodate any changes the future may bring. 


SEE ALSO: Why You Need a Family Mission Statement


Misstep #2: Poor Communication and Faulty Trust

One of the biggest roadblocks to a successful family wealth transfer is a lack of communication and trust within the family. It’s important that you communicate openly and honestly about any plan you’re putting into place, or you risk creating a rift between yourself and your children/grandchildren. This is especially true if your wishes may be different than what your heirs are expecting, or if you plan to include organizations or people outside of your family in the wealth transfer.

If you’re uncomfortable sharing exact monetary figures, try focusing instead on the overall strategy and talk with your heirs about timing, familial values, and what you’re seeking to accomplish with your legacy plan. Keeping the lines of communication open and having transparency with your plans can help mitigate any negative feelings or confusion, proactively alleviate trust issues, and create a higher chance for a successful wealth transfer.

Misstep #3: Failure to Properly Prepare Heirs

Wealth transfers and legacy planning can be confusing, especially once you’re gone and your family is left to carry out your wishes on their own. Failing to make time to properly prepare your heirs and ensure they understand their defined roles within your legacy plan creates the risk of chaos and confusion getting in the way of your family’s wealth transfer.

Think about scheduling a time to sit down with your heirs and describe your vision for your estate to make sure that everyone is on the same page. Work together to determine what each person’s contribution can be. For example, if one of your kids is highly organized, you may want to put them in charge of coordinating family meetings and ensuring your plans stay on course.


SEE ALSO: Families and Finances: Communication is Key


Misstep #4: Missing the Big Picture

As already mentioned, wealth transfer planning can be complex. The process can include many moving parts and often requires big-picture thinking to pull off. Too often, wealth transfers fail because of simple but costly mistakes, such as overlooking tax implications or potential legal issues. It can be hard to understand the implications that legislation may have on your legacy plans, not only currently, but down the road. For example, many provisions in the Tax Cut and Jobs Act of 2017 that specifically impact estate and gift taxes will end in 2025. Knowing how these changes will influence your legacy plan, and what to do about them, is difficult but crucial if you want your wealth transfer plan to be a success.

The Bottom Line

Whether you’re planning a significant transfer of wealth or a more modest one, the key to success is preparation and flexibility. Put a plan in place early on, communicate openly and honestly with your family about your plan, and be sure to review your families’ values as you grow to ensure everyone remains on the same page.

Because of the complicated nature of wealth transfers and legacy planning, it’s wise to partner with a professional that you trust who can help you create a plan that will accomplish your goals. If you’d like to schedule a meeting with a member of the Flourish team about your family’s wealth transfer plan, please contact us today.

About the Author

Kathy Longo, CFP®, CAP®, CDFA

Kathy Longo, CFP®, CAP®, CDFA

Kathy Longo brings over 25 years of expertise and experience to Flourish Wealth Management. Kathy is wholly dedicated to improving the life of each client and finds joy in making complex matters simple and easy to understand. She excels at asking the right questions, uncovering new possibilities and implementing the most advantageous strategies for success. Playing such a pivotal role in her clients’ lives remains an honor and a privilege. After earning a degree in Financial Planning and Counseling from Purdue University, she began her career at a small firm in Palatine, Illinois where she worked directly with clients while learning to build a viable, client-centric business. Over the years, she gained extensive knowledge and wisdom working as a wealth manager, financial planner, firm manager and business owner at notable, various sized companies in both Chicago and Minneapolis.

 

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