Posted on February 26, 2015 in ,

Tips for Successful Family Wealth Transfer

A good family relationship starts with good communication.  A family should be able to talk about important topics like wealth and money.  It might not be in your interest to divulge specifics about wills, wealth transfer percentages, or who gets what material item, but it is a good idea to let your family members know that you have a plan in place when the time comes.

Below are a few good habits for you to include in your family discussions about wealth transfer.  These conversations can be difficult and emotional.  Being open and honest will create an atmosphere where everyone is comfortable. 

Tips for a successful wealth transfer discussions:

  • Cover the key points: be open and honest about your plan.  The more your family members know about your plan, the easier it will be to distribute your estate without much friction.
  • Keep the tone of the conversation light: what we say and do are often disconnected with how we say or do certain things.  Body language matters; delivery is key.
  • Avoid absolute words such as “never” or “can’t” in your conversation: effective communication without negative words allows for better dialogue rather than inviting doubt into the conversation.

Such conversations may be easier for families involving a married couple with biological children.  A more in-depth discussion of wealth transfer may be necessary for non-traditional or “blended” families involving second marriages, and multiple step children or adopted children.

An important issue in dealing with wealth transfer for blended families is how the assets flow to the surviving spouse and family members or after the death of the surviving spouse.  To ensure the surviving spouse and his/her children are financially secure while providing an inheritance to your biological children can be accomplished through methods such as Qualified Terminable Interest Property trusts (QTIPs) or Irrevocable Life Insurance Trusts (ILITs).  Both allow the assets of the deceased to flow in certain directions and potentially at certain intervals to ensure all parties receive a share of the wealth appropriately.

Blended families without a proper estate plan for wealth transfer may run into additional obstacles not observed by traditional families.  Examples of these issues are state inheritance rules, intestate laws, and conflicts in beneficiary designations inconsistent with the will.  Conversely, disinheritance of new family members without the knowledge of the entire family can cause emotional friction between the surviving family members.

Certain laws have changed in regards to beneficiary designations.  Making sure your estate plan is in sync with your retirement accounts should be one of the first items completed as those beneficiaries supersede what was directed in a will.  Having a trust as a beneficiary of an account is one step to control wealth transfer to allow direction and flow of the assets through a trustee rather than an account custodian.  Discretionary distribution of assets is a way to “control from the grave” on how money is given to certain family members that might be financially irresponsible.  This is commonly called a “spendthrift provision.”

Wealth transfer and estate planning can be accomplished by visiting with a knowledgeable estate planning attorney.  You can help protect your wealth and the relationship with your heirs by creating an estate plan now and discussing that plan with your loved ones.

Source: Fidelity Investments

Next time:  Tax Tips for Young Investors