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The Art of Wealth Transfer and Questions to Consider: Part 2

May 31, 2023 | The Baum Jackson Investment Group


Wealth transfer is a difficult and emotional process. Consider the following topics as you begin to create your wealth transfer plan.

Family walking along beach

If you read our previous blog, you understand there is an incredible amount of wealth that will be transferred in the coming decades. If you haven’t, please find the link here. As the previous post suggests, planning for wealth transfer is both an art and a science. In the following paragraphs, we focus on the art (non-financial decisions) that should be considered when transferring wealth.  Our third blog will address the “science”, or the financial aspects of wealth transfer.

Three important questions to ask and topics to consider

1)    What is an appropriate gifting strategy for your family?

As you noticed from the former post, gifting is both art and science. There are certainly financial reasons to create a gifting strategy while living, but there are also non-financial reasons. As it relates to the latter, there are reasons to consider a gifting strategy while you are alive:

  • Seeing the enjoyment it brings your loved ones when they receive a monetary gift; your children may need money for a first-time home purchase or for other major purchases well before they receive their inheritance.
  • Providing educational support to kids or grandkids, either directly to the college or to a college savings account.

These are but a couple of the sentimental reasons to initiate a gifting strategy while you are still living. If you consider making a gift in 2023 to another individual, other than your spouse, the IRS allows for a $17,000 gift per person without filing a gift tax return1. This number is doubled if the gift is made from a couple.  (You can give an unlimited amount to your spouse with no gift-tax consequences). Since these types of transactions can impact your tax liability, we always recommend consulting with your tax accountant prior to making a one-time or an ongoing monetary gift. 

2)    From a financial literacy perspective, how comfortable are you with passing money to the next generation?

Once you decide you want to pass wealth to the next generation, it is important to consider the level of financial responsibility of the receiving party. There are case studies which unfortunately show the next generation, and the generation thereafter, spending recklessly the money received as a gift. If this is something that concerns you, the easiest way to maintain control upon your passing is to create a trust. It should be noted that trusts come in a variety of formats. However, once the trust is established and funded, the trustee of the trust will follow the orders of the trust document. The trust document is where you, the grantor of the assets, can stipulate the amount, frequency, and purpose of withdrawals, among other things. 

A trust is a viable method for controlling assets after your passing, but there are other ways to reduce the likelihood of financial irresponsibility. Below are a few thoughts to consider:

  • Have family meetings with the next generation to discuss wealth, and more specifically, how your wealth was created.  Stories create additional meaning behind the money. Don’t hesitate to share your story, so they can share with future generations.  
  • Develop a family mission statement.  Define your values, talk about what is important to you.
  • If philanthropy is important, explain to the next generation why you give (and to whom) and how you give (Foundation, Donor Advised Fund, outright gifts, etc.).
  • Teach the next generation about various investment options and basic concepts (compound interest, staying invested, savings habits, etc.).  
  • Ask your financial advisor to begin working with the next generation to form a relationship while you’re still living to begin building a level of trust. 

With financial literacy, the earlier the topics are introduced the higher the likelihood of financial success for the subsequent generations.  If you have questions about how to approach this topic with your kids or grandkids, please do not hesitate to reach out.

3)    Do you intend to create a legacy with the wealth that is being transferred?

A financial legacy can come in several different formats. We have included a few examples below:

  • Establishing a foundation with focused philanthropic giving.
  • Funding college savings plans for the next several generations.
  • Purchasing a vacation home, and an associated account for expenses, that is intended to be used for generations to come.
  • Bequeathing the assets directly to an organization that aligns with your values.
  • Explaining to your beneficiaries how your gift is meaningful to you and to them.

Teaching healthy financial habits can also help create a financial legacy. For instance, you might inspire future generations to perform some of the following habits:

  • Create a rainy-day fund that holds 3-6 months’ worth of expenses in cash.
  • Max out their retirement plan at work or at least contribute enough to receive the company match.
  • Develop a charitable giving strategy, if philanthropy is important to your family. 

It should be apparent at this point that a legacy is defined differently by everyone. As these examples suggest, a legacy can be as simple as passing down solid financial habits, or it might mean establishing a multi-million-dollar trust for the next generation.

As wealth managers, we recognize the challenges with passing wealth down to future generations.  It is an emotional process, difficult to think and talk about, and therefore challenging to plan for. With that said, we are here to assist you as you begin the conversation with your children or grandchildren.  It is important that you verbalize and share your values as you transfer your wealth, with the goal of establishing a lasting legacy.  


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