(Forbes) - There is always a sense of relief and satisfaction when completing or updating your estate plan. Once complete, families believe they have protected and accounted for their estate planning concerns. But, does your estate plan pass the multigenerational test?
The overwhelming majority of estate plans fail this test, why is that? Simple, there's little to no communication to compare generational estate planning. Typically, each generation completes their own estate plan; however, this is not adequate to ensure wealth remains protected and optimizes generational wealth transfer. In addition, once family estate plans are more than a couple of years old, they tend to be inadequate as well. Ask yourself these questions: Were there more children born? Are successor trustees still current? Did a divorce occur? There are many more examples that can make an estate plan stale. Life events will happen in any generation: matriarch/patriarch, children, grandchildren or even great-grandchildren. This stresses the importance of staying on top of multi-generation estate planning communication. This blog aims to walk you through these significant events to create an effective multigenerational estate plan.
New children or grandchildren are born:
These are exciting times for families as they grow and expand. After the dust of the new birth settles, many families like to discuss gifting and planning around this new bundle of joy. Parents tend to worry about saving for college meanwhile, grandparents like to think about gifting money. There are many options to consider: 529s, UTMAs/UGMAs, gift trusts to name a few. Many times both generations will create gifting or planning for this newborn but typically do not communicate. Many times, the matriarch/patriarch will just send a check for the newborn without any planning. This forces the new parents to rush to open accounts, and they are already overwhelmed with the new child. More often than not, parents will default to open UTMA/UGMA or 529 college savings accounts because they are very simple to open. This is a simple fix in the short term; however, money accumulates year after year, and these account types are not optimal as family wealth grows and expands. Do you want your newborn child to have access to a lot of wealth at age 18? What if my child gets a scholarship or does not go to college? These simple vehicles can pose planning difficulties in the years ahead.
How to overcome the multigenerational communication barriers?
We often find that the lack of communication among generations is due to these common reasons:
“We don't want our kids or grandkids to know how much money we have and destroy their motivation.”
“We don't want our parents or grandparents to know how much we have (or they might favor one of our siblings with their gifting).”
“We don't know how or the best way to facilitate multigenerational communication.”
There can be many other reasons that inhibit family communication, but these tend to be the most common. Family offices have been established to consider many of these multigenerational estate and communication issues. One approach is to find a holistic wealth advisor or estate planning lawyer to replicate the family office approach. This approach can leverage this trusted advisor to guide the family to overcome the communication concerns. For example, this advisor will understand each generation's wealth and circumstances, leading to less need to share 'how much money we have' concerns. This will allow a 3rd party to independently guide the family to help ensure wealth remains protected and pass the multigenerational test!
In addition, this approach allows families to remain proactive as life events inevitably happen and laws change. This wealth advisor will both meet and proactively understand each generation's growing and changing needs, which will allow for more efficient communication and collaboration at the overall family level.
The amount of wealth that will pass down from the matriarch/patriarch generations over the next 10+ years is more than any generation in the history of the world. We encourage your family to be prepared whether you are the generation passing this wealth down or the generation receiving it. Proper multigenerational planning and communication will help ensure a smooth transition in the year ahead.
By JR Gondeck and Vanessa N. Martinez
ForbesBooks Author
