How to Set Up a Multigenerational Estate Plan That Covers More Than the Basics
By Timothy Brown, MBA, CFA®, CFP®, RICP®, AIF®
Research conducted on over 3,000 families transferring wealth over a 25-year period revealed a sobering statistic: nearly 70% of wealth transfer plans fail (failure being defined as the inheritors’ involuntary loss of control over the transferred assets). (1) The researchers of this study found that 97% of the failures were due to three common factors:
- Breakdown of family communication and trust
- Insufficiently prepared inheritors
- Unclear family mission
At Brown Wealth Management, we know how important a successful wealth transfer is to our clients. We also understand how much time and money our clients spend on developing a sound estate plan. We believe your intentions as a benefactor are of the utmost importance and, as a diligent saver and lifetime wealth-builder, your wishes should be the top priority during the execution of your estate plan.
So with this sobering statistic in mind, we work hard to help our clients develop estate plans that aim for the 30% success rate using strategies we know are important to a successful wealth transfer. These strategies, listed below, go beyond the basics of simply creating a will, designating beneficiaries, and hoping for the best.
1. Have a Clear Financial Plan
A successful wealth transfer starts with a clear financial plan. If you don’t have a clear understanding of your financial plan and defined goals for your wealth, you won’t be able to complete the following steps. A clear financial plan is not a one-and-done document you create, but is instead an ongoing process that tracks your progress and adjusts to changing circumstances as needed.
The most comprehensive financial plans are created in collaboration with your team of experts: your financial advisor, your CPA, your estate attorney, and other professionals important to your financial life. The contact information for the professionals on your team should be easily accessible to your children and grandchildren when the time comes to transfer your wealth.
2. Establish a Family Mission Statement
Next, it’s important to develop a mutually constructed family mission statement. The mission statement clearly defines your family values and the things that are most important to the family as a unit. This written statement becomes the foundation that each family member can rely on to define their financial and life goals while upholding the family legacy. The mission statement can also inform your expectations for how your family will handle inherited wealth.
Every member of the family should be involved in this process—even the grandkids. When each member of the family contributes, they are more likely to invest in the mission statement and use it to help them make decisions in the future. With a family mission statement, you can be assured that your values and legacy will live on for generations to come.
3. Communicate Clearly and Often
Like a financial plan, a family mission statement is a living document rather than a fixed one. And the researchers from the study above found that breakdowns in family communications and trust were responsible for 60% of failed wealth transfers. (2) When you plan intentional family meetings, you set an example for your inheritors for how you expect them to move forward and work together after you’re gone.
And even though it may feel awkward, communicating about how much your inheritors can expect to receive from their inheritance can prevent awkwardness and hard feelings from arising after you pass away. Additionally, you should clearly state which roles family members will perform and why: who will be your executor, who will have power of attorney, and who will inherit the family business, for example.
We recommend holding a family meeting at least annually to discuss wealth and legacy expectations and to revisit the family mission statement. Providing opportunities to hear opinions from each family member and have consistent open discussions also creates trust and closer bonds, which are also important to a successful wealth transfer.
4. Teach About Saving & Investing
Finally, preparing your children and grandchildren to treat their inheritance with care and discernment will increase their chances of success. The more you educate your inheritors about sound financial principles regarding saving and investing, the more likely they will be to use their inheritance for long-term security rather than for short-term desires.
You might even consider partnering with your team of professionals to create preliminary financial plans for each of your inheritors. Involving your children and grandchildren in this process will help them be ultra-prepared for what they can expect and how they can move forward after they receive their inheritance.
Partner With a Wealth Manager Who Can Help
Ultimately, good communication, collaborative teamwork, and clear expectations can greatly increase your chances of a successful wealth transfer. The team at Brown Wealth Management takes your estate planning incredibly seriously.
We start with a detailed questionnaire that helps you clearly define your ideal wealth transfer outcomes and helps us create the right strategies to help you achieve that vision. Schedule a free introductory call today by reaching out to us at (952) 303-6715 or https://www.brownwealth.com/getting-started.
Timothy Brown is founder and president of Brown Wealth Management, an independent, full-service wealth management company that helps individuals and families prepare for all of life’s milestones and events. With more than 20 years of experience in the financial industry, Tim strives to help his clients live happier, more fulfilling lives with the confidence that they have been good stewards of their finances. Tim has a bachelor’s degree in finance and accounting from the University of Colorado and an MBA from the University of Minnesota’s Carlson School of Management. In addition, he holds a rare combination of credentials: Certified Financial Planner™(CFP®), Chartered Financial Analyst™ (CFA®), AIF® - Accredited Investment Fiduciary™ (AIF®), and Retirement Income Certified Professional® (RIPC®). Tim has been recognized for his hard work by receiving the Five Star Wealth Manager award in both the Mpls.St.Paul Magazine and Twin Cities business magazine since 2013.
When he’s not working, Tim enjoys spending time in Eden Prairie with his wife, Stacey, and their four children. You can often find him keeping busy by staying fit, pursuing a black belt in Tae Kwon Do with his three boys, assisting kids with Boy Scouts, and attempting to read two books per month. To learn more about Tim, connect with him on LinkedIn.