What is Intergenerational Wealth Transfer?
We spend a lifetime generating wealth and assets, and it is therefore important to ensure that we pass wealth on to our next generation and beyond. The passing of wealth from one family generation to the next is known as intergenerational wealth transfer.
It is becoming more important than ever to consider succession and legacy planning as part of your overall financial planning strategy. Below we explore some of your options:
Intergenerational wealth transfer can be a huge issue for all family members concerned. If done well and executed properly, it can make a real difference to the financial position of the recipients. If misjudged or poorly handled, it can cause enormous issues, conflicts and resentments that are never forgotten nor forgiven.
Financial implications of Intergenerational Wealth Transfers
One aspect that should be thoroughly considered is the impact on family members, particularly the next generation, as parents think about selling up or passing down a business and entering retirement.
It is important that children are prepared to deal with this process, not least, so they are aware of how they may be affected and what may be expected of them. For instance, children may be expecting to receive a certain amount of money from their parents – particularly those who are selling a business – and end up disappointed, or on the other hand, may not feel responsible enough to take over a business.
Conversely, they may not be expecting to receive anything, and are therefore not equipped to deal with a substantial windfall. Transparency is key when it comes to generational wealth.
Contributory factors of intergenerational wealth transfer management
For those approaching, or in, retirement, it’s important to have frank and open conversations with children about expectations, and whether children have the knowledge and understanding to manage financial matters and how they feel about inheriting a business and/or wealth.
How to deal with approaching retirement
Many families experience a jaw drop moment when their children are exposed to what their parents have been able to achieve financially. Many want to learn from their parents to be in the same position as them in the future.
Although, it is important to remember that we work our whole lives to provide the best for our family and leave behind our legacy. Although you should not feel as though your family are solely reliant on you for their financial situation. It is important to teach your children work ethic, and not simply let them believe they can fall back on the bank of mum and dad. After all, it’s called legacy planning, with the idea of leaving behind a long-lasting legacy of wealth to last your family generations to come.
Expressing financial wishes
The best approach to help your children establish a strong financial foundation to prepare them for intergenerational wealth transfer, is to introduce them to your professional advisers as soon as they reach early adulthood. This can give them comfort knowing that they have someone to turn to for financial advice, and piece of mind someone is there to support their finances with their best interest at heart, should you no longer be around. Open communication and expressing your goals will also ensure your family is all on the same path to success. This can also squash the possibilities of conflict when managing intergenerational wealth after your passing.
Some questions you should ask yourself before starting the intergenerational wealth transfer planning process include:
- When did wealth enter your life, and how do you imagine this timing influences your values and family relationships?
- What impact does affluence have on your life and the lives of your next generation?
- What was the key to success in creating wealth, and how might telling this story to your future generation be helpful?
- What is your biggest concern in raising your children or grandchildren with affluence?
- What conversations (if any) did you have with your parents about money and wealth growing up?
- How did your parents prepare you to receive wealth, if you did?
- What lessons did you learn from your parents about money and finances you would like to pass on to your heirs?
- What family values would you like to pass down to the next generation, and how do you plan on communicating this family legacy?
- What concerns do you have about your adult children when it comes to inheriting and managing the family wealth?
- How can you help prepare your beneficiaries to receive wealth and carry on your family legacy?
The passing of wealth between generations
Many children who are set for vast sums of inheritance can end up becoming over-reliant on their expected windfall. It is important to get the younger generations involved in your business and finances. Teach them how to handle the wealth and responsibilities they will be inheriting, as well as equipping them with advice and professionals who can help them to make wise decisions about the wealth they generate themselves, when you’re no longer here.
Lawsons Equity – Financial Planning Malta
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.
The value of investments and income from them may go down. You may not get back the original amount invested.
Lawsons Equity Limited is a company registered in Malta with company number C49564 and licensed by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994.
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