Sadly, too often, wealth accumulated by one generation is lost by the third generation because of mismanagement and imprudent spending. Use core values in your estate strategy to help prevent this in your family.
GROUND YOUR ESTATE
First, recognize your core values and how they may differ from those of your beneficiaries. Help them understand that your goal isn’t to impose your values on your beneficiaries but rather to protect family assets as far into the future as possible.
START YOUNG
Educate your heirs throughout their lives. Begin with a basic financial education and bring them into the business as teens so they observe you and learn your business values.
INSTILL VALUES IN YOUR DISCRETIONARY TRUST
Trusts are often created for tax-saving purposes, but other asset-protection purposes must be clear to your trustee, especially with discretionary trusts. Write a letter to inform your trustee of any distribution wishes you have that aren’t dictated in the trust document. Such guidance is especially valuable to a successor trustee administering the trust years after it is funded.
For example, you might prefer the assets be used for higher education, a down payment on a home, or to start a business. Or you might want beneficiaries to receive specific amounts or percentages of the trust assets at certain ages or milestones. Understand that the letter is a guide for the trustee, who won’t be strictly bound to follow the wishes in your letter.
According to Cerulli Associates, a research firm, $54 trillion or more may be inherited by Gen X, Millennials, and Gen Z from their baby boomer parents through 2045. Ultra high-net-worth households, the top 1.5% of households, will account for 42% of this Great Wealth Transfer.
COMMUNICATE YOUR WISHES
Use your letter to convey the details and purposes of your wishes. That way, the trustee will have the flexibility of your intentions to be able to explain why certain distribution requests may be denied.