Communication: The Key to a Successful Estate Plan - Rodgers & Associates
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Communication: The Key to a Successful Estate Plan

The youngest baby boomers will reach age 60 this year. Those at the other end of the gener­ation are fast approaching 80. That means the greatest wealth transfer in history is well underway.

Cerulli Associates, a financial research group, estimates that wealth trans­ferred to heirs through 2045 will total $72.6 trillion.1 This event is expected to make Millen­nials five times richer by 2030 than they were in 2019.

Plus, the current estate tax environment is a golden oppor­tunity for families as they transfer wealth. Parents can transfer more assets untaxed by taking advantage of the current (higher) estate tax exemp­tions on lifetime giving, along with other recent tax-advantaged gifting strategies.

But how many of these wealth transfers will be successful?

For most financial advisers and estate planners, a “successful” transfer is a tax-efficient one. Yet successful estate planning is more than just preparing the assets for heirs; it’s preparing the heirs to receive and manage the assets.

Many families have tradi­tionally done an excellent job preparing to pass on assets through prudent investment, tax, and estate-planning strategies. Yet unfor­tu­nately, in some cases, the heirs never receive the necessary coaching and counseling to handle their inheritance.

In fact, according to Forbes,2 70% of wealth fails to transfer to the third gener­ation. One of the biggest challenges facing affluent baby boomers is ensuring their heirs remain in control of the assets and maintain family unity after the transfer. It’s estimated that 60% of wealth transfers fail because of trust and commu­ni­cation break­downs within the family, and 25% fail because heirs aren’t prepared for their inheritance.

Research has shown that improving family dynamics is the most important way to promote a successful transfer of family wealth. Under­standing other family members’ perspec­tives, engaging in regular commu­ni­cation, and proac­tively working to enhance relation­ships are the first steps.

How you transfer your estate to your children and grand­children could be one of the most important financial decisions you ever face—and studies reveal that families who commu­nicate well have the highest proba­bility of success. Commu­ni­cation directly impacts how well a family can plan together, which in turn impacts the survival of the estate.

Further, while tangible aspects of our lives are a measurable way of discussing prosperity, wealth extends far beyond dollars and cents.

Your true wealth includes those areas of life that speak to you as an individual, such as your family name and reputation, your community influence, and so on. It’s vital to define wealth in this way because these values are ultimately what matter most to families. It is a rare person who, at the end of their life, thinks most about asset protection and tax savings. Most people think about the preser­vation of the family and the true legacy they will leave.

How do we define a successful wealth transfer at Rodgers & Associates? We hope to see the heirs receive and manage the wealth in a manner that furthers their devel­opment and life goals. We’ve seen instances where an inher­i­tance damages the beneficiary’s finances and sense of family unity. Success rests on the heir’s ability to use the wealth to further their growth rather than hinder it.

A great way to help your children manage wealth is to help them make smart decisions while you’re still here. Even though many families histor­i­cally consider the topic of money to be taboo, parents need to initiate these important conver­sa­tions and engage their children. An excellent place to start is by calling a family meeting—a practice we cover in depth in a separate article.

These gatherings work best when every voice can be heard; listening is just as important as speaking. Topics can include the financial lessons you’ve learned, as well as your hopes and fears for the next gener­ation. Together, you’ll want to decide the purpose of your wealth and how you’ll use it to further that purpose.

Devel­oping this common vision can be one of the greatest tools to preserve the wealth you’ve worked a lifetime to grow—and to keep the family bond alive in the process. So be willing to set any discomfort aside and get the conver­sation started.

Insights:

  • 70% of wealth fails to transfer to the third generation.
  • Families who commu­nicate well have the highest proba­bility of success­fully trans­ferring wealth.
  • Family meetings allow the family to define the purpose of wealth and how to use it.

Origi­nally Posted: July 3, 2014

Footnotes
  1. U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2023. January 20, 2023. 
  2. Wealth Transfers: How To Reverse The 70% Failure Rate. Forbes Magazine. December 9, 2011.