How To Build A Lasting Legacy Through Wealth Planning

Theodora Lee Joseph, CFA

5 mins

How To Build A Lasting Legacy Through Wealth Planning

Wealth planning, folks, is a real intricate puzzle. Families often procrastinate because it's a labyrinth of complexities. But here's the kicker: wait too long, and you risk losing your fortune. Statistics show that nearly 70% of affluent families lose it all by the second generation, and a staggering 90% bite the dust by the third. But don't fret: with a solid plan and an early start, you can safeguard your family's wealth and create a legacy that stands the test of time.

When to begin: the sooner, the better

Picture this: The Rockefellers, savvy planners, started their wealth transfer saga generations ago. This head start led them to establish a family office and a philanthropic foundation, securing their wealth's future and a lasting legacy.

So if you’re wondering when you should kick off your own wealth transfer, the ideal time was probably yesterday. But the second-best time is right now. Seriously, the process is a marathon of complications and emotions, so, the sooner you start, the better. It ramps up your odds of preserving your family fortune and setting up a legacy.

Navigating wealth transfer challenges

1. Shielding your wealth

Unexpected curveballs like rights disputes, legal showdowns, and tax bills can sneak up on you. Plus, you might not have a say in when you cash out your assets, potentially fetching less than you hoped. And, of course, there’s the possibility of family members mishandling their newfound assets.

Here's an example: The Waltons, the brains behind Walmart, pulled off some nifty moves to shield their wealth. They rolled out trusts to keep estate taxes at bay and made sure the younger Waltons were financially savvy.

2. Cash on hand

When wealth shifts hands, it can trigger major “cash flow events”. You might need to dish out hefty estate and wealth transfer taxes or settle outstanding debts. That's why it's vital to foresee these cash needs and ensure you've got enough on standby.

3. Confronting the unknowns

Wealth transfer isn't a straightforward process. It's like a complex jigsaw puzzle with pieces scattered across various jurisdictions, tax intricacies, and legal quagmires. On top of that, dealing with illiquid assets like art, aircraft, and digital holdings adds another layer of complexity. Then there's the unpredictable dance of politics and economics. To tame this beast, break it down into bite-sized chunks and tackle each challenge head-on.

4. Family business

Deciding whether to keep, sell, or expand the family business can’t wait, so get your family members into the discussion early. They need to grasp the ins and outs of the business and determine their roles. Regardless of your choice, make it crystal clear who's responsible for what, who owns what, and which outsiders should get a seat at the table.

Here's an inspiring case: The Mars family, behind Mars Inc., adeptly navigated this challenge. They engaged family members in company leadership and diversified their investments beyond candy, reducing risks.

5. Crafting a legacy

Wealth transfer isn't just about passing on money; it's about passing on values too. Outline the legacy you'll leave your family and the impact you'll make on society.

Take a page from the Gates family: Through the Bill and Melinda Gates Foundation, they've etched their legacy in global health, poverty alleviation, and education. Their philanthropic values and goals transcend financial wealth.

6. Preserving family harmony

Wealth transfers can ruffle family feathers. It's crucial to approach this as a family affair, giving everyone a voice to express their thoughts and concerns. Consider it an opportunity to reflect on what wealth means, define your family values, and grasp the responsibilities it entails.

Case in point: The Koch family, famed for their role in Koch Industries, prioritize family unity and open communication. They hold regular family meetings and put a premium on shared values to ensure wealth doesn't become a family feud trigger.

Launching your wealth transfer journey

Start by understanding wills, trust types, beneficiary designations, powers of attorney, health care proxies, and life insurance options. Then, tackle the challenges covered above.

If you’ve just started thinking about your wealth transfer, the following success criteria can help you evaluate its effectiveness, ensuring it aligns with your family's financial well-being, values, and long-term goals.

Financial stability and growth

  • Preserve and grow transferred wealth
  • Ensure sustainable income

Family's financial goals and needs

  • Align with family's financial objectives
  • Provide for education, homeownership, retirement

Estate planning

  • Minimize taxes and fees
  • Facilitate a smooth transition

Education and financial literacy

  • Ensure family members are financially literate
  • Familiarity with estate planning

Communication and family harmony

  • Encourage open dialogue
  • Promote conflict resolution

Social responsibility and philanthropy

  • Consider social impact and philanthropy

Professional advisors

  • Assess the performance of financial and legal advisors

Legal and tax compliance

  • Ensure compliance with laws and regulations
  • Optimize tax efficiency

Generational sustainability

  • Plan for multi-generational sustainability

Measurable mMilestones

  • Set specific, measurable, and time-bound goals

Feedback loop

  • Establish a feedback mechanism for family input

Contingency planning

  • Prepare for unexpected events with contingency plans

If all this sounds intimidating, remember that it doesn’t all have to fall on you: you can get external help from a wealth planner to guide the process, helping you each step of the way. The most important thing, though, is that you start as early as possible. Hope is not a strategy: the only way to preserve your family’s wealth and legacy is with a sound plan.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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