June 22, 2023

Five Tips For Effective Intergenerational Planning

By Alex Sterba, CFP®

Five Tips For Effective Intergenerational Planning

It is estimated that $68 trillion dollars will be passed from the baby boomer generation to younger generations over the next ten years. Even if you haven’t thought about your financial legacy, it’s an essential part of an effective planning process. If leaving money to the next generation is an important goal, you must prioritize that aspect of your financial plan.

In our position as advisors, we see the impact of a client or family member passing more often than we would like. During such an emotional time, money is the last thing anyone wants to think about. That’s why it is important to lay the foundation for the inheritance of your legacy as early as possible.

To start thinking about estate planning, review the following five tips on making the transition of wealth from one generation to the next as smooth as possible:

  1. Communicate.

    This is the most important – but also the hardest – step for most people. It is difficult to talk about death and dying. But in practice, communicating with your beneficiaries is essential to setting them up for success. If necessary, reframe the conversation as something positive to jumpstart this critical discussion.

    Communicating with beneficiaries will also help set expectations. Often, children would rather see their parents spend lavishly on themselves than worry about leaving money earmarked for inheritance. Establishing an open line of communication can also lead to tax, investment, and insurance planning opportunities. For example, the new Free Application for Federal Student Aid (“FAFSA”) rules stipulate that there is no student aid penalty with respect to 529 plans owned by grandparents rather than parents.1

    If starting the conversation proves particularly difficult, one strategy might be to invite beneficiaries to tax, investment, and financial planning meetings. This allows the financial professional to act as an impartial third party, and thereby reduce the emotional impact of legacy conversations. Furthermore, it can help establish trust and understanding between the family members and your advisor(s).

  2. Document.

    Far too often, households will have multiple accounts at multiple financial firms with no documentation to speak of. A secure central database with every account, contact person, and even a recent statement can help reduce stress and anxiety for the next generation. This is commonly referred to as a letter of instruction and intent. It often includes funeral instructions, financial details (e.g., where records are located, how to access them, whom to contact, etc.), the distribution of personal effects, and things they never got around to saying to the family. Common examples of important financial accounts to document are brokerage accounts, IRAs, checking and savings, annuities, life insurance policies, pension records, debt payments (car, house, etc.), real estate, and individual security holdings (CDs, stocks, bonds).

    In today’s digital world, it may also be essential to have a written process for closing out online accounts. Instructions as to how to access digital assets should be included. Digital assets are the content that’s stored digitally, including, but not limited to, photos, videos, files containing texts, or slide decks. Having a written plan for these can save your loved ones’ time and energy during an already difficult period.

    Proper documentation allows your beneficiaries to focus on executing your wishes – not scrambling to find hidden accounts.

  3. Execute Legal Documents & Store in a Secure Place.

    Make sure to have the legal side of the estate buttoned-up. It is important to name powers of attorney (financial and medical) and create a living will. Update the will as changes occur. If necessary, solicit the help of a legal professional to ensure documents are properly written and enforceable.  This is doubly important if you have a trust in place for your assets, or property in multiple states. Make sure the executor of your estate is named, the location and access of the documents is shared with appropriate people, and you communicate your wishes long before their involvement is necessary.

  4. Update Beneficiaries & Account Titles.

    Verify that every financial asset has some sort of beneficiary attached. The reason is twofold. First, naming beneficiaries is the easiest and most straightforward way to hand down assets at death, as there is little room for interpretation. Second, any asset with a listed beneficiary will not go through the probate process. This can save time, money, and stress for the executors of the estate. Importantly, do not forget assets like checking accounts, savings accounts, and primary or secondary homes. It is possible to add a Transfer on Death (TOD) or Payable on Death (POD) to these assets as well. TOD & POD designations immediately title the account in the beneficiary’s name, saving your heirs from the probate process.

    If you do have a trust, be sure to place all assets you want distributed in the name of the trust. This can and should include non-financial assets such as real estate. In addition, check all insurance policies to see who is listed as the owner, insured, and beneficiary of each. For high-net-worth clients, it may be important to remove the death benefit associated with the estate and ultimately reduce the tax burden upon death.

  5. Create or Update Your Financial Plan.

    Lastly, a properly built financial plan can help alleviate anxiety and stress affecting you following your retirement. A financial plan can assist you with information about saving, spending, and highlight any potential risks you may face headed into the retirement/spend-down stage of life. In addition, a financial plan can highlight different ways to help maximize the amount you’ll be able to give to the next generation. For example, taxable assets with a large gain might benefit from a stepped-up cost basis at death; spending down other assets may keep more money in your family’s pocket in the long term.

Legacy planning can be a tough subject to talk about. However, it is essential for both you and your family to lay a solid foundation and communicate the plans for your hard-earned assets. Creating a financial plan and working with a financial planner may help alleviate stress while keeping more money in your pocket through the transition process. 

Marcum Wealth is here to help guide your planning process. If you would like, feel free to reach out for our Estate Planning Packet, which can help you start thinking about how to best pass down your assets. If you have any questions or want to begin the financial planning process, please reach out to a Marcum Wealth advisor so we can provide answers.

[1] https://www.bestcolleges.com

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