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Tips on Transferring Wealth

Money is one of the uncomfortable things to talk about with family. However, having that awkward financial conversation is important. Communicating with family members about personal finances, estate plans, and the transfer of wealth is an important step in helping them to have clear expectations and preparing them for the future.

Intergenerational wealth, also called generational wealth, means assets that are passed from one generation to the next. What does this transfer of wealth look like and how does it affect family dynamics? Let’s take a look.

Family and Wealth

We’ve all heard some version of the story: a wealthy relative dies, a family feud and lengthy court battle for the inheritance money follows, and the recipient of the money squanders it all within a few years.

Is this how wealth is passed from generation to generation? In the movies, always! But in real life, it varies from family to family.


Currently, Baby Boomers, those born between 1946-1964, have a median net worth of just over $200,000. It is estimated that as Boomers and the older generations die, they will bequeath anywhere from $30 to $68 trillion to either families, charities, or both. What does this mean for upcoming generations?

We often think of wealth being passed down upon a person’s death. Annually, two million households receive some type of monetary gift or inheritance; half of these inheritances are under $50,000. What about those $1 million inheritances we sometimes hear about? They account for less than two percent of assets transferred.

Inheritances are often in the form of cash via bank accounts, insurance benefits, or other forms of payouts. But they can also be comprised of stocks, bonds, other investments, homes, property, boats, cars, jewelry, or a family business, among other things.

Inter Vivo Transfers

Many people are opting to share their assets with the next generation while they are still alive. Oftentimes, the transfer of wealth occurs in conjunction with a significant life event like graduation, marriage, first child, etc.

Some other ways include:

Education. Some people help their adult children and grandchildren pay for higher education by contributing to tuition, housing, books, or living expenses while they are in college.

Down payment of a first home. Helping a young adult or a first time home buyer come up with the down payment for their home is a common way to transfer wealth.

Gifts. Monetary gifts given annually is another way to share the wealth. Up to $16,000 per person or $32,000 per couple can be given yearly, tax free. Amounts larger than that are subject to federal gift taxes.

Medical expenses. Some people choose to share assets with their heirs by paying for their outstanding medical bills.

Balance and Accountability

The impending intergenerational transfer of money from Boomer to Millennial (those born between 1981-1996) has often been referred to as the “Great Wealth Transfer.” With a potential $68 trillion changing hands over the next decade or so, many boomers are taking a hard look at how they want their assets distributed.

Boomers have the highest divorce rate in American history. Second marriages, stepchildren, and half siblings have all made wealth transfer a little more complicated. Should assets be divided equitably or not? So much depends on family history, financial circumstances, and the character of each child.

Some scenarios may include:

● When a parent is aware that a potential heir is mentally, emotionally, or financially irresponsible, they may choose to limit the amount left to them.

● If a child has been a caregiver to them, the parent might want to leave that child more to compensate them for their time and lost wages.

● A child with special needs may need a special trust set up on their behalf.

Certain parents have decided to skip leaving their kids an inheritance at all and instead distribute their assets to grandchildren. Others choose to leave nothing to their families and donate their money to their favorite charity upon their death.

Leaving a Legacy

Mistakes are made when wealth moves from one generation to the next. The statistics can look pretty grim: wealthy families lose their wealth by 70% in the second generation and by 90% in the third. While this statistic applies mainly to those with a high net worth, about 6% of the U.S. population, there are important lessons that everyone can learn from it.

Avoiding Mistakes

In order for wealth to be successfully forwarded to the next several generations, a few discussions need to happen.

Teach kids. One important key is to teach kids and grandkids about money and good financial habits from an early age. Ignorance about how money is made and invested can foster ingratitude and result in poor decisions.

Talk about money. Keeping lines of communication open, even when it’s uncomfortable, helps to keep things transparent. Discussing the will, who gets what and why, and the sum of assets clarifies things for everyone.

Tap into professionals. Mishandling inherited assets can result in a big tax hit, financial penalties, and loss of wealth. Even though heirs may not choose to keep their parents’ financial advisors, they should be taught to employ a qualified advisor or tax professional to help them.

Continue Building Family Wealth

Having wealth to pass on to your kids, grandkids, or charity is an excellent goal. Some things to keep in mind as you continue building your own family wealth include:

Secure your retirement. Choose to save and invest in your own retirement fund. Having a plan to remain financially viable as you age is a gift not only to yourself but to your family as well.

Choose the right retirement vehicles. Pensions and Social Security may not provide what they once did for retirees. Utilizing company-match 401(k), Traditional and Roth IRAs, and other retirement funds help take advantage of compound interest.

Have an estate plan. Protecting the wealth that you have built over the years is crucial. Help to secure your assets by making sure you have a will, living trust, durable power of attorney, healthcare power of attorney, advance healthcare directive, and beneficiary designations.

Final Thoughts

The passing of intergenerational wealth can be a blessing or a curse, depending on how you and your heirs choose to handle it. Open communication, clear expectations, and having a plan are all ways to make the transfer of family wealth a smoother and easier process.

Written by Matthew Delaney


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