Building a Legacy: The Advisor’s Role in Preserving Family Wealth

By Michael Schneider on July 27, 2023

One part of my job is to ensure that the adage that family wealth doesn’t make it past the third generation does not apply to the families I work with. For most people, transferring wealth is more than transferring monetary assets, it also includes passing down family legacy values. Discussing family wealth has traditionally been a taboo subject. I remember growing up and naively asking how much money my parents made and being told, “It is not polite to discuss money.” The problem with that sentiment is that when it comes time to transfer wealth, families don’t consider the challenges that may lie ahead. There are three phases to transitioning wealth:

1. Planning leading up to the transfer.
2. Coordination and organization during the transfer.
3. Following through after the transfer is complete.

Figuring out how to make this process run smoothly can be difficult and leaning on your advisors is a responsible way to alleviate this burden. This blog aims to walk you through each of these phases and offer strategies to help ensure a smooth transition of wealth.

Planning

Working with your financial advisor and estate attorney to design a well thought out estate plan during the planning phase can help your family in multiple ways. From a monetary perspective, a proper plan can lower or eliminate your own estate tax and transfer wealth to the next generation outside of their respective estates, potentially saving future estate taxes for them too. From an investment standpoint, money that is already set aside for the next generation or outside of your estate can be invested differently. For example, if you have funded gift trusts for your kids, your advisor can help you invest those funds to match their time horizons and risk profiles, potentially creating more wealth for them in the long run. Additionally, your advisors can help ensure that your assets are organized and titled correctly. We have seen examples where assets are never put into trust or are mistitled. These mistakes can force your estate to go through probate or even lead to avoidable estate taxes.

Coordination and Organization

When a wealth creator passes away, it is important that the financial, estate, and tax advisors are in communication with one another. The administration of an estate is a complex process. Using your advisors to coordinate this part of the wealth transfer can ensure that all administrative tasks are accounted for. Your estate attorneys will complete specific tasks such as filing the will, creating tax IDs for new entities, and coordinating when and how assets move to the next generation. Your investment advisors will work with the attorneys to create the new accounts, distribute assets, and help the next generation understand what they are inheriting. Additionally, they should also be coordinating with your accountants so all tax matters can be closed out efficiently. The goal of this part of the wealth transfer process is to allow the family time to grieve and not worry about the financial matters.

Following Through

The final phase to a successful transfer of wealth to the next generation is the follow through. The investment advisor will help the next generation understand not only what the new investments are, but also explain what the new entities are that hold these investments and how each of them work. What may be the most important part of this phase is how the new assets are incorporated into a beneficiary’s financial plan. Depending on how assets are titled, the advisor can be a guide on how different pools of money can be invested and which assets should be tapped first. The role of the advisor during this phase is to help the next generation become accustomed to the new wealth and set themselves up for success and the ability to pass their own wealth to the next generation again.

While each of these three phases are important, the most crucial role of an advisor to help ensure a smooth transition of wealth is to provide and promote communication. Advisors have subject matter expertise and can be relied on to provide objective guidance that can be used to provide comprehensive strategies tailored to meet specific goals. They can also be used as a conduit between generations. We have seen several instances where both parents and grandparents create trusts for the grandkids. While the intentions are good, these duplicated efforts not only waste money on attorney fees, but they lose the ability to combine and scale the investments. Additionally, advisors can provide a buffer for family dynamics. Wealth transitions can be an emotionally charged time and having an advisor coordinate and communicate with different family parties may alleviate some of the stresses that accompany wealth transfers.

Going through the wealth transfer process necessitates careful planning and consideration for various financial, emotional, and interpersonal aspects. Working with trusted advisors can help make sure the next generation is set up to navigate the complexities of a wealth transition with confidence. Ultimately, they can work with families to help them build a legacy wealthier than money!