Financial Planning: High-Net-Worth Wealth Transfer to Heirs

The great wealth transfer is underway in America. Through 2045, Baby Boomers will pass down assets worth roughly $84 trillion to Gen Z, Millennials, and Gen X. What constitutes a high-net-worth (HNW) inheritance? In the United States, that number averages nearly $750,000 per inheritor, but can be much higher.

Posted on March 8, 2024

Owners of HNW estates typically monitor and amend their estate plans regularly. They understand that the responsibility of financial stewardship will ensure continued wealth for many generations.

But what about preparing their adult children (inheritors) for this wealth transfer? How can parents help ensure the next generation stays on track? How can they engage them to assume the values underpinning their family wealth goals?

Preparing the Next Generation

No matter what your family dynamic, relationships between generations can come with trust issues and a lack of communication. More than ever, high-net-worth people try to foolproof the assets their children will inherit through trusts, charities, and foundations. Often, they'll collaborate with estate planning attorneys as well as investment or financial advisors to accomplish this.

However, the next generation’s attitudes are shifting from local to global as alternative investing options become mainstream. Smart philanthropy now has a non-governmental organization (NGO) of forums, clubs, associations, and other non-profit entities. These shifts are changing the mindsets and the influence generational wealth has on heirs.

Learning Financial Responsibility

Many inheritors may lack a basic financial understanding, particularly if their parents pass away sooner than expected. Some heirs may find themselves suddenly benefiting from a trust with significant assets, with little knowledge regarding their responsibilities.

Beginning the process

As a first step, provide young adult children with the necessary financial education to understand basic financial concepts. These concepts might include budgets, investment portfolios, risk tolerance, tax planning, and wealth management. Consider seminars, workshops, or personal discussions about handling money responsibly.

Don’t overlook the opportunity to connect your heirs with your legal representative and a certified financial planner before you are gone. Two-thirds of inheritors will leave their parent’s advisors upon receiving family wealth. However, understanding the HNW estate’s background and their parents’ financial situation as well as their investment and legacy desires may continue to influence them as they identify their path forward.

Foster a strong work ethic

Encourage your adult children to pursue their careers passionately while emphasizing the value of hard work and accomplishment. Lead by example; help them understand that wealth is a tool that can enhance lives, not a substitute for ambition and purpose.

Teach good habits

Help your adult children develop sound financial habits like saving, budgeting, and living within their means. Teach them about the consequences of reckless spending, credit card debt, and the importance of building long-term financial security.

Perhaps you have an adult child who struggles with responsible behaviors or addiction issues. Consider a plan to stagger their distributions rather than providing a lump sum of inheritance.

Gradual distributions can help them adapt to handling larger sums responsibly. You may also opt to permit oversight by professional trustees and limit instant access to wealth. In these ways, you can help them learn how to make better financial decisions over time.

Involve them in financial planning

Encourage your adult children to participate in family financial planning discussions. They should understand the family’s values, goals, and strategies for wealth preservation. This includes any trusts designed to distribute funds at specific life stages. Invite them to create a financial plan of their own.

Include a discussion about the tax implications of inheritance. Ensure your adult children understand the potential liabilities associated with estate or inheritance taxes. Provide them with guidance on tax-efficient strategies for managing their wealth.

Prepare for the emotional aspect

As a parent, be prepared for pushback. No matter how much estate planning you accomplish, the experience of your children’s upbringing guides their reactions and future choices. Ultimately you can’t legislate from the grave, so conversation, listening skills, and flexibility will serve you well today.

Receiving a significant inheritance can be overwhelming for anyone, and the emotional challenges may require resources beyond standard financial education, such as counseling or support groups. Many children raised in HNW families are protected from outside world realities. Open and honest conversations about feelings can be as important as the nuts and bolts of financial management.

Consider philanthropy together

Include your adult children in your philanthropic activities and involve them in charitable giving decisions. Co-opting decision-making early on can reinforce shared values and create a sense of purpose beyond amassing wealth. However, remember that their charitable or philanthropic choices may change after you’re gone.

Promote financial independence

Being raised in a family with extensive resources can allow young people to pursue financial independence as entrepreneurs or through other avenues, such as e-commerce. You may not recognize their pursuits as valuable, but it doesn’t mean they can’t create niche environments for revenue streams. Multiple revenue streams are a hallmark of successful, wealth-building young adults.

New Generation Equals New Perspectives

Beliefs about wealth in younger generations are distinctly different from those of their parents. New financial goals and charitable aspirations between generations often don’t present themselves until after the transfer of wealth. This doesn’t mean HNW parents should stop trying to shape their children’s financial perspective. It may still provide the structure for making informed decisions to maintain financial success.

Why Can’t Children Fall in Line?

First-generation (G1) HNW individuals, leaving their heirs a legacy, worked and built their wealth. They often began their financial journey while growing up in the middle class. They took caution when considering the saving and spending of money. Financial uncertainty motivated them, a feeling their children likely never knew while growing up.

The next generation has less concern about themselves and their ability to achieve or maintain financial success. A different perspective allows them to spend or give money more comfortably, which can be a plus.

Consult With an Estate Planning Attorney

Contact a local estate planning attorney if you have concerns about transferring wealth to the next generation. The differences between generations are not inherently good or bad. Attorneys in this area of law can offer an objective perspective and help guide important family conversations.

They also can identify many financial resources to prepare your heirs for their future responsibilities. With a proper understanding, heirs will be more likely to uphold your most closely held values and choices.

Find a qualified estate planning attorney near you today.

For additional reading, check out the following helpful articles:

• Estate Planning for High-Net-Worth Families
• 2024 Annual Gift and Estate Tax Exemption Adjustments
• Dynasty Trust: A Tax-Efficient Way to Pass Wealth Down