3 Stages of Effective Wealth Transfer

Estate Planning

These steps can help improve your likelihood of success

Passing wealth on to your children should be a crowning moment—a celebration of your legacy and a way to set future generations of your family on a more sure-footed path. It’s a meaningful final gift that’s as rich in heritage as it is in material assets. And the benefits can be life-altering.

With a clear plan, the process of transferring wealth can be easier, less stressful, and help ensure that family goals and values are factored into your decisions. Yes, studies do show that 70 percent of families fail to successfully transfer their wealth to the next generation.Disclosure 1 But with stronger communication, more trust, and better preparation of younger heirs, those odds can be overcome.

Talk with your children about wealth as they grow and mature. And craft a smart, careful, long-term plan for wealth transfer. It will benefit not only your family, but the greater community and causes that matter. The following guide is designed to help navigate wealth transfer discussions with your heirs in a thoughtful manner during three important stages of life.

Stage One: Full House

While the family is living together under the same roof, it’s important to teach your children financial savvy and responsibility, as well as give them a sense of the family’s financial state—including the source of your money and your financial priorities.

“It’s valuable to have conversations about where the family money comes from and how the family has built wealth,” says Craig Cascio, Sr. Vice President, Director of Ultra High Net Wealth Advice and Planning at Truist. “I think a lot of people fear that if their children know too much about their wealth, they’ll be demotivated. But with an open, honest conversation about how that wealth was created, there’s a much better chance of those kids growing up with the values that the parents have.”

  • When children are in elementary school and in their preteen years, explain the value of earning and saving money and the relative prices of different items;
  • In high school, educate them on topics such as budgeting, credit, and managing a checking account; and
  • Review these skillsets before kids leave for college and assume more financial independence. 

If your family is involved in philanthropic work, Cascio recommends encouraging your children to get involved to help instill values of charity and financial responsibility. It’s also a great way for them to learn about causes important to the family. Similarly, if your family owns a business, this is a great time to expose your children to it.

“Some families will actually create a family mission statement where they’ll work together across generations and talk about what’s important to the family and what legacy they want to share,” Cascio explains.

Stage Two: Late Career

As children graduate from college and enter the workforce, there are differing philosophies as to how involved they should be in your estate planning.Disclosure 2 Some people think it’s best that they know little about your plans so they’ll focus on working hard and building wealth rather than becoming complacent in the knowledge they’ll inherit a substantial sum. Others point to the difficulties in inheriting a large estate without prior knowledge, financial education and preparation.

But keeping your kids in the dark about the extent of your wealth can lead to a major shock down the road. For example, one of Cascio’s clients offered a $300,000 loan to their daughter who wanted to buy a new home to support a growing family. The woman nearly refused, concerned that her parents wouldn’t be able to afford it. Little did she know that the family estate was worth $75 million.

“Should something unexpectedly happen to the parents, their children wouldn’t be anywhere near prepared to deal with that sort of large inheritance,” Cascio explains. This is why we encourage having more detailed conversations about your wealth transfer plan with children who are college age or older. First, however, spouses need to ensure they’re on the same page regarding how assets will be passed down. It’s a conversation your Truist Wealth advisor or estate planning attorney can help facilitate.Disclosure 2

“You don’t want to be sitting down with your kids and discussing wealth transfer plans before you and your spouse have hashed out all the details,” Cascio cautions. He recommends crafting an initial simple will no later than when your first child is born, and then revisiting the document every three to five years.

Once you reach the empty-nest stage of life, it’s time to more fully flesh out your plan and begin sharing it with your children. Whether or not you intend to give them input, early communication (and paying close attention to their reactions) can help you address any concerns they might have and avoid any future family conflicts.

How forthcoming you should be (and when) will require a deeper understanding of your children. “There’s a tremendous amount of psychology, as opposed to law, that plays into this,” says Gerry W. Beyer, a professor at Texas Tech University School of Law who specializes in estate planning. “In the past, the silent approach was more common, and then the pendulum swung and now there’s a lot of talk about full transparency having the better shot of working. The best approach is somewhere in between, and you have to select the right balance based on your own family,” Beyer suggests. 

This is also an ideal time to increase your children’s involvement in the day-to-day affairs of your estate. That could mean playing a larger role in the family business or having more philanthropic influence over a family foundation or donor-advised fund.

Stage Three: Retirement

Once you’ve retired, it’s time to begin formulating a more detailed strategy for your estate transfer—one that fairly treats all beneficiaries and promotes harmony, but also protects the long-term health and continuity of prized assets such as a family business.

1.      Start by observing. By now, you’ll likely have a good sense as to which children most value specific assets (e.g., a vacation home or the family business) and would appreciate inheriting a share of those assets.

2.      Then, sit down together for a casual family discussion aimed at fostering harmony and validating your assumptions.

3.      Armed with this information, you can then begin building your plan.

For example, if two children want to be involved with the family business and one doesn’t, Cascio suggests giving equal shares of the company to the two children who care about it, while earmarking different assets of comparable value to the third sibling.

“Being fair, however, doesn’t always require that inheritances be equal. Sometimes there may be reasons to reward one child over another. Additionally, when a family business is involved, you may not want to dilute the ownership of one child who has actively worked in the business for years by sharing the asset equally,” Cascio says.

“Typically, in situations like this we recommend that clients look at other assets such as their marketable securities in cash or real estate (or possibly purchase a life insurance policy) as a way to balance out the estate. That way, active participants in the business can inherit the business without any hurt feelings,” he adds.

While every family is unique, active planning and careful communication are critical to successful wealth transfer. Speaking with your children about financial matters—beginning with general financial education when they are young and progressing to the specifics of your family’s estate and plans for wealth transfer as they grow older—is key.

This framework can help you not only pass on your wealth and legacy to the next generation but also help ensure that key family values endure for generations to come. 

Interested in learning more about estate planning and wealth transfer?

Talk to your Truist Wealth advisor.