Knowledgeable And Trusted Legal Counsel

Estate planning and the “third-generation curse”

On Behalf of | Apr 4, 2024 | estate planning | 0 comments

California residents will pass a tremendous amount of wealth to their heirs in the next two decades as they direct assets to their children and grandchildren through estate plans. Yet, sometimes, those inheriting significant wealth mismanage it, leaving little to enjoy. Taking the time to impart your values and wishes can help avoid this scenario.

Communication is key in successful wealth transfers

Projections indicate that baby boomers will pass $84 trillion in assets to their heirs by 2045. While many have taken proper estate planning steps and have the necessary documents, such as trusts and other financial instruments in place, not everyone takes an additional step by discussing how they plan to leave their wealth. Families often have difficulty talking about their financial plans with the next generation. While the majority of American business owners have an estate plan, 94% have not communicated their plan to their heirs because they have concerns about how imparting that information will impact their beneficiaries.

What to do after you sign the documents

You should develop a communication plan after you have set up your estate rooted in the value that drove you to create the plan. While sheltering income from taxes is a significant reason for your actions, sharing your values and the reasons behind your plan can help beneficiaries understand how they should handle inherited assets.

Consider writing a letter of wishes

One of the most significant concerns of people establishing estate plans involves how various family members will react to how they leave assets to specified family members in instruments like discretionary trusts. Taking the time to understand your personal values and how you want to manifest them should precede trust creation. However, you can make your wishes known on how you want trust assets to be used for, i.e., education, and what they should not be used for, so heirs don’t spend wastefully.

Such guidance can become an invaluable means of heading off inheritance mismanagement. It can also provide a roadmap for administrators who will remain aware of your wishes when the time comes to distribute assets.