How Can Estate Planning Address the ‘Third-Generation Curse?’

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Third-generation curse
KS and MO Attorney Kyle E Krull

Written by Kyle Krull

Attorney & Counsellor at Law Kyle Krull is president of the Law Offices of Kyle E. Krull, P.A., an Estate Planning Law Firm located in Overland Park, KS. Estate Planning Attorney Kyle Krull has provided continuing education instruction to attorneys, accountants, and financial professionals at local, state, and national programs.

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POSTED ON: April 11, 2024

Thorough communication with heirs about values and various elements of your estate plan could help younger generations better manage their inherited wealth.

The third-generation curse is not inevitable.

People do not inherently live responsibly if left to their own devices,

Toddlers and children tend to demand what they want in the moment.

Self-discipline and delayed gratification are learned through careful instruction of parents and teachers.

According to a recent Kiplinger article titled "How Estate Planning Can Thwart the 'Third-Generation Curse,'" families must also teach financial management.

In the coming years, nearly $84 trillion is expected to be transferred from the Baby Boomer generation to those in Generation X, the Millennial Generation, and Gen Z.

Despite this significant sum, the third-generation curse would predict the speedy squandering of these funds.

After all, money gifted spends differently than money earned.

Third-generation curse can destroy generational wealth.

The third-generation curse indicates heirs will burn through inherited wealth.

What exactly is the third-generation curse?

It describes the phenomenon of wealth being earned by one generation, maintained by their children, who watched their parents' hard work to create financial security and then wasted and mishandled by the third generation, who did not respect or understand the origin of the money.

How can you prevent the effects of this generational curse?

A vital step is communication.

You should discuss your values and teach the younger generations how to grow and preserve wealth.

While tax planning is one way individuals and families focus on preserving wealth through their estate planning, helping your family understand the reasons for your choices can help them take informed action.

You should share with your heirs about where the money came from, how it has been stewarded, and how they can preserve and protect it.

By doing so, your heirs will value the gift.

You may find that your heirs have values and priorities different from yours.

Perhaps your loved ones have similar values, but they describe them differently.

Clarifying what is important to you and the legacy you desire to leave can provide direction and context to the inherited gift.

Often, values guide the stipulations and actions taken with estate planning.

For example, those who consider education of the utmost importance may choose to create a trust with instructions to provide for the education needs of heirs.

Including letters of intent can facilitate explaining your wishes to heirs and trustees.

If you do not want to dictate strictly from the grave, you can create a discretionary trust to avoid the third-generation curse.

With a discretionary fund, you can provide a letter explaining your wishes for using the funds and why you would like the money used.

Because circumstances can change, you can provide some restrictions and flexibility.

After you have made your estate plan, you should meet with your loved ones to describe its structures and purposes.

Doing so will help your heirs better understand and accept your wishes.

Because not every family is the same, working with an experienced estate planning attorney is essential to discuss how you can avoid the third-generation curse with your loved ones.

This post is for informational purposes only and does not provide legal advice. You should contact an attorney for advice concerning any particular issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.

Reference: Kiplinger (March 12, 2024) "How Estate Planning Can Thwart the 'Third-Generation Curse'"

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