Tips for creating an inheritance that lasts generations

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Originally published by Raymond James.

Preparing your heirs for sudden wealth can help prevent unwise spending.If you have wealth to transfer, you may worry about the sometimes adverse effect of sudden wealth and the squandering of assets within a generation.There is a good reason to be concerned: 70% of family money disappears by the second generation, and 90% by the third generation, according to the Williams Group wealth consultancy. The cautionary tales of families like the Vanderbilts also feed into this worry.The result? Around 60% of parents think their children aren’t prepared to receive a large inheritance, a study by U.S. Trust shows.If you’re in this position, you have a number of options to help ensure your legacy lasts.

Consider taking advantage of a trust

Trusts can help eliminate some of the guessing game of where money might end up, while allowing you to dictate how and when your assets are distributed after you die.

For individuals with relatively young heirs, age provisions that dole out trust income to beneficiaries only when they’ve reached certain ages can be beneficial. A common threshold for distribution is reaching age 25 or 30. Generation-skipping trusts are another helpful vehicle. In some cases, this type of trust can allow you to transfer money tax-free to your grandchildren or great-grandchildren.

Connect through philanthropy

Making charitable giving a family affair can provide opportunities to connect with younger generations and communicate values and ideals. When a philanthropic mission is shared among your family, it provides a forum for communication and sharpened decision-making in a situation where the money is going to others and there is no personal interest at stake. Donor advised funds and private foundations can be effective vehicles for this type of endeavor. Charitable remainder trusts (CRTs) can also help if you wish to give assets to charity in order to leave a smaller inheritance.

Talk to your heirs about your vision

Many squandered inheritances can be traced back to a root cause – poor communication. In nearly 60% of boom-and-bust inheritance cases researched by the Williams Group, trust and communication breakdown among family members played the largest role.

To help prevent a communication breakdown, consider sharing history, values and a vision for the future of your family. This can be done in person at a family gathering or through a written statement, also known as an ethical will or legacy letter. With a common purpose and shared story, your family stands a better chance of preserving assets for future generations.

Leverage a professional’s perspective

The Williams Group research points to failure to properly prepare heirs as another cause of lost inheritance, affecting about 25% of the cases studied. Your financial advisor can play a role in educating you and your family about inheritance, as well as wealth management and its important principles.

Creating a lasting legacy is neither easy nor impossible – the difficulty lies in the details. Finding the tools and resources that will benefit your family and situation can help make the difference between a squandered fortune and an inheritance that lasts generations.

Raymond James is not affiliated with the Williams Group.

Align your investments with your values.

Sustainable investing gives you the opportunity to allocate your investments toward those that have shown a commitment to solving global challenges such as climate change, social inequality, and unfair business practices. Through sustainable investing, not only can you aim to make a positive impact on society and the environment, you can potentially improve the risk/return characteristics of your portfolios by factoring environmental, social and governance (ESG)** criteria into your investment decisions. Sustainable investing offers a growing number of options for investors interested in achieving goals beyond financial growth when building their portfolios.

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