Establishing a legacy of financial security and stability for generations is possible. How? With strategic, forward-focused planning. If family financial stability is something you value, it’s essential to get other family members involved in the financial planning process early.
Let’s examine the critical components included in developing multi-generational wealth planning and a legacy for your family.
First, Focus on Increasing Financial Literacy
Unfortunately, most schools don’t teach financial literacy classes, and even college students don’t always have access to finance-related courses. Instead, it’s often up to parents and grandparents to teach their children basic financial concepts like budgeting, saving for the future, strategic debt management, investing, and more.
Don’t assume younger family members know as much as you do about the family’s finances, especially if they’ve never been involved in them before. Instead, you should feel compelled to help them understand the responsibility of managing multi-generational wealth and the long-term benefits of developing healthy money habits now.
These conversations aren’t always easy, especially regarding more complex topics (like estate planning or long-term investment strategies). Our team at Paradigm can help you facilitate discussions and direct you toward any additional resources you or your loved ones might need as you kick off this process.
Estate Planning and Wealth Transfer
Establishing an estate plan is one of the most integral components of managing multi-generational wealth. The goal is to develop and execute a transfer strategy that effectively preserves assets while minimizing taxes.
For example, if your estate exceeds the federal tax exemption limit, a portion of it may be subject to as much as 40% in federal estate taxes.1 Some individual states impose their own estate or inheritance taxes, which is another potential tax liability for which to prepare your family.
To mitigate some tax liability, consider gifting a portion of your estate to family members during your lifetime. Remember that gifting over the annual or lifetime exemption limits can have potential tax consequences, so you’ll want to be strategic in how and when.
Our team at Paradigm can collaborate with you and your attorney to help you develop or revise estate-focused documents, such as your will, beneficiary designations, healthcare directives, trusts, and other legal documents you may need.
Risk Management and Insurance
We mentioned how tax minimization strategies can help preserve more of your family’s hard-earned wealth, but having the right insurance coverage is also critical.
Your insurance needs will likely differ from those of other family members (especially across generations).
For example, a family with young children may rely on a life insurance policy to provide a financial safety net, especially if they haven’t built up a sizable nest egg yet. By comparison, older adults in or near retirement who no longer rely on a paycheck may not need extensive life insurance policies (or any life insurance, depending on their situation).
It’s essential to analyze the risks unique to each generation and identify what types of policies are best suited to meet their needs. Ensuring all family members are adequately covered from unexpected events can help preserve generational wealth longer.
Investment Strategies for Long-Term Growth
When your investment portfolio is geared toward building and protecting multi-generational wealth, the focus extends beyond outlasting your lifetime. Your goal is to create a legacy of financial security for generations, which means incorporating other family members’ financial goals into your investment strategies.
Our team can help you review your current holdings, discuss diversification strategies to reduce risk, and regularly adjust as your circumstances evolve.
Communication and Collaboration
Every family is different, though traditionally speaking, most families don’t discuss their finances with one another—especially not across generations. However, communication and transparency are crucial when establishing and executing a multi-generational wealth transfer strategy.
We understand you may feel uncomfortable talking about money with your kids or grandkids. We can facilitate these tough conversations, bypass any discomfort regarding money, and help all members understand your plans and goals.
Just as you must communicate your intentions and educate your younger family members, allowing them to ask questions or get involved in financial planning is essential. You may find that when they’re actively engaged with the family’s finances, they’ll be more inclined to manage them responsibly.
Adapting to Life Changes
Consider just how much your family has changed over the past ten years. Maybe a grandchild graduated college, or your niece married and had a baby. You may also have experienced loss, perhaps a divorce, or an unexpected illness. Or, you could have accumulated new properties, opened new bank accounts, or otherwise grown your financial asset base.
Your financial and estate plans should be reviewed and updated following any major life event. Again, our team at Paradigm can help you accomplish this. Regularly updating your beneficiary information and estate plan as you experience life changes is an integral part of your financial plan and the legacy you want to leave.
Creating a Lasting Legacy for Your Family
The key to multi-generational wealth planning is communication, education, and flexibility. If you want to create a dynamic and meaningful legacy of generational wealth for your loved ones, we’re here to help. Feel free to reach out and schedule time to talk with our team to learn more about how we can help you and your family work toward your long-term goals.
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