If you’ve built up significant assets, you probably want to ensure that they enrich your family for decades to come. It’s entirely possible, with smart financial planning, for your savings to help even a great-grandchild pay for college or maybe even finance a mortgage.
Passing wealth between generations, though, isn’t always easy. Tax implications and how heirs handle the money are just two factors that can complicate your plan. In fact, most family wealth won’t make it to the third generation, according to Tim Voorhees, a tax lawyer.
Define your goal
Simply put, financial plans that have a clear goal are more likely to succeed. “What tends to be missing in families where the money doesn’t stay in the family is a shared, unified plan,” Bouchard says. How you define your goal is up to you and your family. It could be as simple as ensuring the money lasts for three generations. Or, as Bouchard notes, it could involve an ethical will — a non-binding document where you express your values and what you’d like your money to mean to your heirs.
When it comes to the obstacles of passing down assets, “the biggest is a lack of communication between family members,” Bouchard says. It’s not uncommon, for example, for families to discuss money only after a death in the family, making an already emotional time even more difficult. Instead, Bouchard recommends having these conversations when everybody is alive and well. “Being able to navigate those conversations is really important,” she adds. “You should put in as much effort as you do with your asset preservation strategies.”
Consider a facilitator
Sometimes enlisting the services of a third-party facilitator can help make conversations about family finances easier and more productive. A facilitator, Bouchard explains, is a professional who has a strong background in family dynamics and communication. In searching for one, Bouchard urges you to do your research, just as you would for a financial advisor. You’ll want to find out how they work, evaluate their track record and consider their financial and familial expertise.
Consider hiring financial advisors and creating trusts
If your long-term financial plan has very specific goals, like ensuring that an amount of money lasts until a specific date, you might consider hiring a financial advisor. With them, Bouchard says, you’ll explore specific structures — like trusts — that keep your goals on track.
Ultimately, Bouchard says, it’s important for family members to bring in income of their own. After all, money doesn’t last forever, and knowing how to save and earn money wisely can help preserve your financial legacy for generations to come.
Note that at Ally Bank, you can open an Interest Checking Account, Online Savings Account, Money Market Account or any of our CDs as an account for that trust, allowing the funds to earn a competitive interest rate. Please consult your tax professional.
Have you started or benefitted from a trust fund? How long would you like your wealth to last?