8 financial wellness tips to help manage generational wealth

Published on January 24, 2024 | LPL Financial

Asset management and financial wellness can help develop long-term confidence when wealth transfers from generation to generation. Understanding and implementing financial wellness techniques is essential for effectively sharing wealth with the next generations. Here are some financial wellness tips to help manage generational wealth transfer more confidently:

Tip #1 – Participate in Estate Planning

A vital pillar for managing generational wealth transfer is thorough estate planning. Estate planning doesn’t just involve drafting a will; an estate plan should include provisions for the possible incapacity of the wealth owner, power of attorney, healthcare directives, and other appropriate documents for efficient wealth transfer. For high-net-worth individuals, it’s essential to incorporate trusts as part of the estate plan to help pursue the future control of assets.

Tip #2 – Purchase Life Insurance

Life insurance is essential for generational wealth transfer because it allows one to leave a significant amount of money tax-free to heirs. Life insurance can also help cover estate taxes and provide liquidity when needed.

Tip #3 – Plan for Taxes

Generational wealth involves a significant transfer of resources, which may be subject to various taxes. Therefore, understanding which taxes may impact an estate and strategically planning for taxes plays a pivotal role in preserving assets for the next generation. Consulting tax, legal, and financial professionals is essential, as they can help guide you through the tax planning process and various tax laws that pertain to your situation.

Tip #4 – Diversify Portfolio Investments

A portfolio with diverse investments may help mitigate the risk of losing money. Variety in investment can help guard generational wealth so it is not as affected by changes in a single market occurrence. Engaging financial professionals to help manage these portfolios effectively may be beneficial.

Tip #5 – Encourage Education and Mentorship

Financial education, mentorship, and training are critical when transferring wealth to the younger generation. Education helps the next generation comprehensively manage the wealth they inherit. Encourage taking financial literacy courses, attending financial workshops, and seeking help from financial professionals.

Tip #6 – Define Philanthropic Goals

High-net-worth families often use philanthropy as a wealth transfer strategy. Besides tax breaks, philanthropy demonstrates passing on values to inheritors. Therefore, it’s essential to incorporate philanthropic goals into the wealth transfer plan alongside other financial wellness techniques.

Tip #7 – Communicate

Making sure that everyone involved has a clear understanding of the owner’s wishes concerning generational wealth. Regular meetings help keep everyone updated on plans to transfer wealth and to whom. Also necessary is understanding wishes for care if benefactors become incapacitated, who is POA, and so on, which can help deter problems later and avoid family conflicts.

Tip #8 – Engage Professionals

Engaging professionals in family meetings is beneficial for efficient communication and understanding among the parties involved. A team of financial, tax, trust, and estate legal professionals can provide recommendations based on the latest regulations, investment strategies, goals, and wealth transfer plans to help assets remain intact for heirs.

In conclusion, managing generational wealth is essential in preserving it for future generations. Part of developing financial wellness is emphasizing the importance of implementing these eight tips to help navigate the plan to transfer wealth into a more manageable goal.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which insurance product(s) or investment(s) may be appropriate for you, consult your financial professional prior to purchasing or investing.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This article was prepared by Fresh Finance.

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