7 Considerations for the Multigenerational Transfer of Wealth

March 28, 2019

Congratulations on becoming a grandparent! By any measure, this is an exciting, rewarding time. This life change also offers the opportunity to revisit your estate plan to determine the best ways to “pay it forward” for your grandchildren.

What should you keep in mind when planning to share your wealth with future generations? How can you protect your assets and make sure your gift goes toward the things you value?

Fortunately, there are a number of strategic options when it comes to transferring wealth to grandchildren. Here are seven important considerations for gifting the next generation:

  1. Write a Letter to Your Successors. Take the time to write, sign and date a letter that explains your philosophy about investing to your heirs. Build context about how you created your wealth, why you think it’s important to save money and what you value. That way, your trustees and your grandchildren understand what’s important to you, even after you’re gone. It will also help them to understand how you achieved financial success.
  2. Set Up a Trust. If you have more than $500,000 in your estate, a trust may be the best way to give money to your grandchildren after your passing. There are a variety of trusts available that can include children as well as grandchildren. A trust will be professionally managed and protected from external influences. You can specify what you’d like the trust to be used for, including education expenses, healthcare, weddings, starting a business or buying a house. You can also stipulate that your grandchildren can only spend the income from the trust, not the principal. Remember that trusts can be established to protect assets from bankruptcy, lawsuits and creditors, which means your money will be safeguarded for the future.
  3. Put Money in a 529 Educational Savings Account. This is a great option for grandparents who want to contribute money to help fund a college education for their grandchild. The money can be used for tuition, housing, books and related expenses and can be transferred between 529 accounts, without any tax penalty, in the event that one sibling needs more money for college than another.
  4. Set Up a Custodial Account. A custodial account is an ideal choice for grandparents with minor grandchildren who want to transfer smaller amounts (less than $100,000) to the next generation. The grandparent can be the custodian for the account, but we normally recommend naming a grandchild’s parent as the custodian account.
  5. Designate Your Grandchildren as Beneficiaries. You can make your grandchildren beneficiaries of IRAs, life insurance policies, or investment accounts, which means the funds transfer on death, without having to go through a will or probate process. This is a simple way to make sure your grandchildren will receive money immediately after you’re gone.
  6. Don’t Let Avoiding Taxes Dictate Your Gifting Strategy. Give to your grandchildren from the heart, as a sign of love and affection. Remember that your assets will not be subject to an estate tax unless you and your spouse have more than $22.8 million in assets. In addition, your grandchildren will never pay any tax on receipt of a gift.
  7. Communicate, Communicate, Communicate. Have repeated conversations with family members about your wishes and about your philosophy regarding earning, saving and investing. It’s important to reinforce this message over time, so your loved ones understand your wishes as well as your priorities.

In order to make sure the transfer of wealth to grandchildren is set up correctly, work with an experienced, trusted financial advisor. An investment professional can help you achieve your goals and ensure that future generations will benefit from your hard work as well as your generosity.

Need help? Please reach out to us to get started.

This article does not represent a specific investment recommendation. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from The Fiduciary Group which can only be provided through a formal advisory relationship. Clients of the firm who have specific questions should contact their advisor. All other inquiries, including a potential advisory relationship with The Fiduciary Group, can be directed here.

AUTHOR:

MALCOLM BUTLER, JD