I’m a Financial Advisor: Here’s What You Shouldn’t Do About Intergenerational Wealth

Financial Advisors

Maybe you were born rich, or maybe you made a fortune. Either way, if your family has money, you’ll want to keep it.

GOBankingRates spoke with several financial advisors to learn what not to do about intergenerational wealth.

don’t be too generous

While it may be tempting to use some of your family’s money to help others, don’t be too generous, says CFP Mike Kazakewicz, partner at Coastal Bridge Advisors in Westport, Connecticut. I warn you.

“The biggest mistake some customers make is giving large gifts to family members without considering their own long-term needs and longevity potential,” he says.

don’t be too stiff

While it may make sense to have guidelines for how families spend their money, Kazakeewicz cautioned against going too far.

“Your heirs may need access to funds at some point to start a business or for medical or educational needs,” he said. “Be sure to write a clause that allows access to important expenses.”

Don’t overcomplicate the structure

If you do set financial guidelines, be careful not to overcomplicate them.

“Sophisticated structures may maximize both gifting capacity and tax efficiency,” Kazakewich said, adding, “But … the complexity and expense of administration reduce the long-term benefits of gifting. it is possible,” he said.

Don’t Create Extra Tax Problems

It’s smart to make sure your grandchildren are taken care of, but do it the right way.

Kazakewich said that leaving wealth to children could raise tax issues if customers gave their children financially secure gifts themselves. “Instead, consider gifting your grandchildren through means such as opening a generation-skipping trust or a 529 college savings account.”

Do not nominate older councilors

While it’s not uncommon for clients to appoint trustees to oversee trusts that benefit their children, Kazakeewicz advised to be mindful of the trustee’s age.

“By the time these trusts are funded, beneficiaries are often working with trustees who are decades older than them and are willing and able to take on the role,” he said. There may be none,” he said.

Don’t neglect financial education

Even if you hire someone to manage your assets, it’s also important to keep yourself informed.

Jason J. Hamilton, founder of Keep It Simple Financial Planning and CFP of CRPC, said, “Failure to educate yourself and your heirs about personal finances and wealth management will lead to poor decisions that will impact generations.” It can erode inter-generational wealth and lead to inter-generational poverty.” “It is therefore important to keep learning about such issues to stay informed.”

Don’t Neglect Real Estate Planning

It’s something no one wants to think about, but Hamilton advised getting things organized.

“Not having a proper inheritance plan can result in unnecessary taxes, legal battles and mismanagement of wealth,” he said. “Make sure you have a well-structured inheritance plan that clearly shows how your wealth will be distributed between generations.”

don’t waste

When you have a lot of money on hand, it can be easy to overindulge.

“Excessive spending, indulgence in luxury and living beyond your means can quickly deplete a family’s wealth,” Hamilton said. “To preserve it for future generations, we must establish sound budgeting practices, implement disciplined spending habits, prioritize our savings and investment efforts, and use sound spending practices such as disciplined savings plans. must be carried out.”

Remember to diversify

It may be easier to keep your money in one place and leave it there, but it’s not wise.

“There is risk in over-relying on any single investment or asset class,” Hamilton said. can be protected,” he said. “A well-diversified portfolio may also offer protection from catastrophes in certain regions.”

Don’t forget tax planning costs

Thinking about taxes is never fun, but you can’t help but think about it.

“Failure to take steps to plan for tax savings could create unnecessary tax liability and hinder the creation of intergenerational wealth,” Hamilton said. “Work with tax professionals and advisors to develop strategies that optimize your tax position while enhancing asset retention.”

Keeping abreast of economic changes

Current economic conditions can affect your assets, so you should be aware of them.

“The economic landscape is constantly changing and failure to adapt can severely erode intergenerational wealth,” Hamilton said. “Get informed about economic trends, investment opportunities and market changes and adjust your strategy accordingly.”

avoid confusion with heirs

Family money can be a blessing, but lack of communication can also make it a curse.

“Miscommunications between you and your heirs regarding assets and financial plans can lead to mismanagement, confusion and conflict,” Hamilton said. “Have an open and honest dialogue about wealth, values ​​and expectations to ensure a smooth transition.”

Don’t take philanthropy lightly

It’s natural to help others when you have more than you need.

“Failure to integrate philanthropy and giving back to society into intergenerational wealth planning can create a sense of entitlement among heirs and reduce their positive impact on society,” Hamilton said. said. “Encourage philanthropy within the family and involve heirs in philanthropy.”

Do Not Abuse Trusts and Financial Advisors

Hiring an advisor to handle your assets doesn’t mean you need to take a completely hands-off approach.

“Trusts and financial advisors can be great tools, but relying solely on them to manage your wealth can be dangerous,” Hamilton said. “In addition to regularly reviewing your investment performance, keep your commitments on track by regularly reviewing your financial plans to ensure they are aligned with your goals.”

Be sure to adapt to evolving family relationships

Family matters can be complicated, especially when money is involved.

“Family dynamics change over time and, if not reconciled, can jeopardize the maintenance of wealth across generations,” Hamilton said. “Stay connected with your family, deal with conflicts proactively, and seek professional help to navigate complex family relationships.”

Don’t improve your standard of living without a plan

Money can’t buy happiness. In fact, not having a financial plan can ultimately lead to disaster, says Mark Struthers, CFA, CFP, founder and financial adviser to Sona Wealth, a financial planning firm in Minneapolis, Minnesota. I said yes.

“For health and wealth, life needs more than shopping,” he said. “Unplanned changes in living standards can lead to spending more than wealth can sustain.

Don’t change the way you raise your children

“Money changes people in individual ways sometimes,” says Struthers. “Some of my clients have often maintained a middle-class lifestyle until their children were grown up, ensuring an environment in which they were raised according to their values.”

We want the best for our children, but please think carefully about what that means for your family.

Ultimately, with this kind of wealth, families can live comfortably for generations. We hope these tips will help you protect both your money and your relationships with loved ones so you can make the most of this good fortune.

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