Broker Check

EJ’s Economic Edits – The Economics of Wealth Transfer

| February 16, 2017
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Editor’s Note: In this new blog segment Eric will seek to sort through and simplify often misunderstood economic and financial topics that affect our everyday lives on a bi-monthly basis.  If you have a topic that you would like Eric to write about, don’t hesitate to reach out to

In economic speak, distribution is defined as the way total output, income, or wealth is distributed among individuals (such as labor, land, and capital). This concept is a core tenant of the neo classical school of economic thought that dates back to the 1900s.  The distribution of wealth, or transfer of wealth to the next generation, is equally as important in financial planning as it is in economics. In fact, over the next several decades baby boomers will be participating in the largest wealth transfer in our country’s history, topping nearly 30 trillion…with a T. However, transferring wealth from one generation to the next has a 70% failure rate, so if an upcoming transfer is to be successful you need to be having a dialogue with your financial planner. To increase the likelihood of a smooth transition, you need to develop a formal plan.

So how does one take the necessary steps to pass on a lifetime of hard work to the next generation? At times, this can be a difficult conversation to have with children or grandchildren; its right up there on the discomfort level with politics and religion. However, most of the time the conversations are simply never started, and that is the worst approach possible.  To be successful, preparation is key. The conversation will be very different with a potential beneficiary that is in their 20s, 30s or 40s, but the conversation needs to happen and will help to lessen the likelihood of family conflict or avoidance, preserve wealth, lower estate costs, and potentially reduce taxes.

Many believe that just having an updated will in place is good enough. This is not the case. In fact, most of our clients’ assets today are transferred via beneficiary designations and thus would not be included in an individual’s probate property. Examples of this would be life insurance, and company sponsored retirement plans such as 401ks, pensions, IRAs and annuities.

For a transfer to be effective, there needs to be coordination.  At our firm we act as the facilitator, even if we need to leverage outside resources in the estate planning process.  If your CPA is not talking to your estate attorney there are bound to be even greater challenges.

To help the process go smoothly, make sure your family has a vison of what the future will hold and who you want your legacy to be shared with.  You will next want to create a financial balance sheet.  Our clients all have access to our robust financial planning software that can print one of these with a few clicks. After that you will want to be sure you have all of your legal documents in good order and up to date.  These would include: wills, trusts, power of attorneys, health directives and trust documents. Last but not least, set a reminder to revisit your plan in the future.  We recommend that all estate planning documents be reviewed at minimum every three years or when a major life event occurs (change of job, death, marriage, divorce, illness etc.)

Bottom line, if you have not started having the discussion about intergenerational wealth planning, there is no better time than now. We can help facilitate the discussion.  Give the office a call to see how we can help. Until next time, keep the faith.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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