Estate Planning with a Multigenerational Focus

Vince Pastorino • Mar 29, 2023

As a comprehensive wealth management firm, we understand there is much more to a holistic financial strategy than just investment management. One key element to any financial strategy is estate planning. Estate planning is not just about creating a will, but a comprehensive process involving preparation for the transfer of wealth from one generation to the next. We regularly hear, “We have estate documents, we’re done with that.” However, you might be surprised how often, upon further review, we find missing beneficiaries, incorrectly titled assets, and other material discrepancies. Below, we will discuss the importance of proactive estate planning, especially as it relates to multigenerational wealth.

Blended Family Estate Planning

Every family is a little different, and that’s what makes families so beautiful! One common family structure is the blended family, which is a family including a couple and their children from previous relationships. According to the Love to Know website, 40 percent of families in the US are blended, with at least one partner having a child from a previous relationship1.

Verify Your Beneficiaries

Life has many twists and turns. From losing a partner, to marriage, to divorce, to having biological children or stepchildren, there are many potential changes as life progresses. It is very important to verify your beneficiaries and proactively update your Will and Trusts on a regular basis. For example, at the time of a loved one's passing, or during a divorce, updating beneficiaries on your 401(k) or other assets may not be top of mind. A proactive estate plan with your financial Team can take this off your plate.

Verifying your beneficiaries is essential because when you pass, your assets transfer directly to those people. If there are any mistakes or missed names on your beneficiary list, your surviving family may have to jump through legal and financial hoops to correct your oversight.

Be Specific in Your Will & Trust

Blended families often have unique interpersonal relationships, and these should be reflected in your estate documents. You may leave assets to your surviving spouse, but upon their death, can you be sure your remaining assets will be divided evenly among the children you would like to see benefit? In addition to including monetary assets, sentimental items (Personal Property) should be addressed in your documents as well. There are many details that if not recorded correctly, may put your best intentions at risk. With proper planning and regular updates, the probability for error is greatly reduced.

Regulate the Flow of Money

In a perfect world, all beneficiaries would spend their inheritance responsibly. However, we do not live in a perfect world. Often, one or more of your beneficiaries may need a bit more assistance when it comes to inheriting your assets. For example, a beneficiary may enjoy gambling just a little too much, head straight to Vegas, and bet their inheritance on black. In such cases, you might want to consider a spendthrift trust.

According to the Trust & Will website, a spendthrift trust limits your beneficiary’s access to assets2. Rather than receiving a lump sum, the beneficiary receives funds incrementally. This can be great protection against bad spending habits. In addition, with a spendthrift trust, creditors cannot come after an inheritance still held in the trust because it belongs to the trust, not the beneficiary.

Multigenerational Estate Planning

Multigenerational planning involves planning for the transfer of wealth from one generation to the next. One of the main reasons proactive estate planning is so important is it allows families to maintain control over their assets and ensure their wishes are carried out after they pass away. Without an estate plan, the state in which you reside will determine how your assets are distributed. This can lead to unintended consequences and can result in family members not receiving what you intended them to receive. By creating an estate plan, you can ensure that your assets are distributed according to your wishes and your family is taken care of.

Another reason proactive estate planning is important is that it can help families minimize taxes and other costs associated with transferring wealth. Estate taxes, for example, can be a significant burden on families, especially those with high net worth. By creating an estate plan with a focus on tax laws and other financial considerations, families can minimize their tax burden and ensure more of their wealth is passed on to future generations.

It is important to start the planning process early, as it can take years to create a comprehensive estate plan that considers all the unique needs of each family member. By starting early, families can ensure their wealth is transferred in a way which aligns with their values and goals.

Think Far Ahead

It’s important to remember generational wealth planning is a bit different from designating gifts for your kids and grandkids through estate planning. When you begin building your generational plan, you should be considerate of future generations – even the ones you’ll never meet. The point of generational wealth planning is to pass your assets down to those who haven’t been born yet, but it can be hard to consider their needs alongside the family members you already know and love.

Put It In Writing

Putting your plans in writing can rid future generations of potential doubt or confusion regarding your wishes. Your heirs are the ones who will truly be carrying out your generational wealth plan after you are gone.

Be sure to specifically identify how money should be used, how it is accessed and how it is replenished. With proper planning, it’s possible your money could be used to invest in higher education, starting a business or other things to help your family grow their wealth for decades to come.

Create a Support System

Do you know what a sustainable withdrawal rate is for your assets? If you aren’t sure, your heirs won’t be either. Understanding this, along with a number of other technical details, is an important part of maintaining wealth for decades to come. This is why working with the right system of financial professionals could be your greatest chance at successful generational wealth transfer. They will have the advantage of working one-on-one with you to determine your goals, develop and plan, educate your heirs and help them stay on track.

Estate planning is designed to facilitate the transfer of wealth to future generations. By preparing for the future, individuals can ensure that their assets are passed down to their beneficiaries in a way that promotes financial responsibility and sustainability. This can help create a legacy of financial stability and security for future generations. If you would like to explore how the Team at Buttonwood can benefit you and your family, contact us today for a conversation.

This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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