It can be hard to protect generational wealth without proper estate planning.
Financial discipline in saving and spending is typically required to build wealth.
Although wealth can take a lifetime to build, it can be quickly squandered.
Strategic wealth management and estate planning are essential for those who desire to have their financial legacy benefit future generations.
By failing to have or implement a plan, families can quickly deplete inheritances through impulsive financial decisions, family disputes, and unnecessary taxes.
The goal of estate planning for generational wealth is to help support children, grandchildren, and future generations.
The statistics for generational wealth are grim.
Studies indicate about 70 percent of wealthy families lose their riches by the second generation, while about 90 percent lose them by the third.
Yikes!
What are the most common causes of this phenomenon?
The first is the poor financial literacy of the heirs.
When they inherit, they have no plan for responsibly managing the assets.
The next culprit is taxes.
Improper estate planning can lead to significant portions of the estate being sent to the government to cover state and federal taxes.
For some families, legal disputes are to blame.
When last wills and trusts lack clarity, they can trigger expensive battles over the estate.
Another common issue is the failure to review and update plans.
Because financial laws related to inheritances, tax regulations, and trust structures can change over time, neglecting to update a plan under new legislation can make a plan ineffective.
Comprehensive estate planning with an experienced attorney can protect wealth and preempt these common issues.
Trusts are invaluable tools for establishing greater control and protection over wealth.
While last wills and revocable living trusts can distribute assets directly to loved ones, various trusts may provide more structured management and safeguards.
There are a few trusts commonly used in generational wealth preservation.
What are they?
Revocable Living Trusts.
With these trusts, the trustmaker who created the trust typically serves as the initial trustee.
Accordingly, the trustmaker/trustee maintains control of the assets while they are alive, and the trust assets bypass probate after their death.
Irrevocable Trusts.
For those requiring more complex estate and gift tax planning and robust asset protection, irrevocable trusts are helpful.
They can provide greater security because assets are permanently removed from the estate and control of the grantor.
Generation-Skipping Trusts (GSTs).
These trusts help reduce the tax liability for grandchildren as assets skip their parents' generation.
With trusts, inheritance distributions can be associated with financial milestones, incentives for responsible actions, or a specific timeline.
Individuals with a high net worth are vulnerable to estate tax issues when their wealth and estate plans are poorly structured.
How can comprehensive estate planning help in preserving generational wealth?
By utilizing gifting strategies like the annual gift tax exclusion, wealthy individuals can provide gifts to heirs while alive and simultaneously reduce their taxable estate.
Charitable giving through donor-advised funds and charitable remainder trusts provides tax deductions.
With Family Limited Partnerships (FLPs), generational wealth can be gradually transferred and benefit from reduced tax burdens.
If wealthy families neglect tax planning, businesses or other assets may need to be sold to pay taxes.
While some families are more prone to conflict over money, all are vulnerable.
Working with an experienced estate planning attorney can help prevent costly legal battles.
By crafting straightforward last will and trust agreements to direct asset distribution, heirs cannot exploit ambiguities.
For families with wealth tied up in business, a business succession plan can streamline leadership transitions and preserve the effectiveness and value of the business.
You can promote settling disputes outside the courts by establishing mediation clauses or other conflict resolution mechanisms.
Comprehensive estate planning can prevent minor disagreements from becoming expensive court battles.
An essential aspect of preserving generational wealth is teaching responsible financial management to heirs.
An experienced estate planning attorney will encourage the education of younger generations on investment and financial management strategies.
If they do not have financial advisors, an estate planning attorney can provide introductions or referrals to professionals who can provide these services.
By using incentives in your estate plan, estate planning attorneys can help you encourage responsible investment and spending.
The ultimate success of generational wealth preservation involves future generations making wise choices with their asset.
Transitions can be a challenging time for family businesses.
It is important to have an established succession plan in place before the retirement or death of the founder.
Effective succession planning involves identifying and training new leadership for the transition.
Ownership transfers can be made easier by establishing buy-sell agreements.
Financial protection for the business often involves ownership being structured in LLCs or trusts.
Without a business succession plan, your family business may be unable to survive beyond the first generation.
Estate planning is essential to generational wealth transfers.
Without a comprehensive and strategic plan, your family's riches could be lost to squandering or taxes.
If you are worried about preserving what you have built and safeguarding your legacy, request a consultation with our Overland Park estate planning office.
Without a plan, the odds the wealth you created will not last long with your heirs are high.
Incorporating trusts can help you manage distributions while promoting responsible financial management and preventing irresponsibility by your beneficiaries.
Individuals with high net worth could face significant estate taxes.
You can minimize your tax liabilities by using annual giving and charitable donations.
Clear and comprehensive estate planning can preempt legal battles over your estate.
Ultimately, educating your heirs on wise financial management will help to preserve and grow your generational wealth.
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.
References: J.P. Morgan (Nov. 18, 2024) "We Need to Talk: Communicating Your Estate Plan With Your Family" and Business Insider (Feb. 9, 2025) "Inside the Retreat for Billionaire Heirs Trying to Give Away Their Money"
REMEMBER: “The choice of a lawyer is an important decision and should not be based solely upon advertisements.”
This statement is required by rule of the Supreme Court of Missouri.
