Wealth Management & Financial Planning

Wealth Management & Financial Planning

What You Should Tell Your Beneficiaries

People have generated more wealth than ever before in American history. Fed data estimates that roughly $84 trillion of assets are currently owned by the Baby Boomer Generation and the Silent Generation. Over the next 20-30 years, these assets will pass to Gen X, Millennial, and Gen Z generations. This phenomenon is being branded the Great Wealth Transfer.

Based on these incredible numbers, it is clear that millions of future beneficiaries will be affected by the inheritance their loved ones leave them. Leaving a legacy is a priority for many of the families I serve, but they have concerns over how best to leave their assets to their beneficiaries. They want to bless their children and grandchildren, but they do not want the money to become a curse. Some children and grandchildren may lack financial responsibility; gambling or addiction problems may be an issue. What if their children and grandchildren go through a divorce? What legacy plan will work best for the unique challenges of a special needs child? Maybe it would be best for their children to be self-reliant, so they don’t become complacent with inherited assets. Indeed, leaving an inheritance seems like a luxury, but it comes with complications.

I help families with their estate plans to make sure their wishes are carried out – this could be through beneficiary designations or through a trust that details a distribution schedule of their assets – and I always make sure to encourage the family to talk with their beneficiaries about the plan they have prepared. Tell them about the types of assets you are passing to them; answer their questions, and provide them with guidance about how you would like this legacy to enrich their lives. Are most of your assets in qualified accounts, which have tax implications? Do your beneficiaries understand the 10-year distribution rule that applies to these accounts? Do they understand the tax implications? Do you have assets in a trust? Will you plan for a distribution schedule over several years, or will your beneficiaries receive a lump sum?

A common adage is to wait 6-12 months before making a major financial decision after receiving an inheritance. Emotions may be running high from the loss of a loved one, and it is easy to seek relief by spending a large amount of money on a purchase that would not have been made otherwise. On the flip side, many beneficiaries struggle to acknowledge that the inheritance is now their money. They will see it as “Mom and Dad’s money” and have guilt about receiving their assets. Talking with your beneficiaries may not prevent mistakes or remove the guilt that an inheritance can create, but it is a great opportunity to provide financial wisdom and guidance.

The Great Wealth Transfer will happen, and most financial prognosticators are thinking about how it will affect the stock market and the economy. Things will change, but the focus should be on your situation and your family. Take the time to talk with your beneficiaries to make sure they are prepared for what is coming.

Financial Enhancement Group is an SEC Registered Investment Advisor.

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