Estate planning for generational wealth is the process of organizing your assets, legal documents, and financial decisions to help ensure your wealth is preserved and passed down efficiently to future generations.
Estate planning for generational wealth sets up a clear blueprint for your end-of-life wishes and the distribution of your assets after you pass away. When you have the ability to impact the lives of your heirs for generations, it is helpful to lay out how you want that wealth to be handled. This can be especially important when thinking about long-term generations wealth planning.
While no one wants to think about dying before they’re old and gray, the earlier you start making decisions about what you want to happen at the end of your life – and after you’ve passed away – the better. Leaving estate planning until the end, or not getting to it at all, may force you to make hasty decisions or leave your family struggling to know what you really wanted.
Our previous article in this series focused on generational wealth planning from the perspective of family alignment, which can be a critical angle to consider in effective generations wealth planning. In this sequel article, we will dive deeper into some practical ways estate planning for generational wealth can help make a potentially stressful experience smoother and simpler to handle.
Specifically, we will consider six foundational areas of estate planning: wills, trusts, beneficiary designations, powers of attorney, health care directives, and retirement account planning.
As a final note before we begin: you may also want to check back here for our next article on multi-generational wealth planning (how multiple generations can actively work together to optimize this process).
What Is Estate Planning for Generational Wealth?
As you look toward, or you are in, your retirement years, it might be time to think about what you want to happen to your assets once you have passed away. Estate planning for generational wealth is about taking your ideas for how you want your assets to be handled and putting them in writing.
Formalizing your wishes in this way is something to consider doing sooner rather than later, because none of us knows when our last day will be. Saying goodbye without solidifying your final financial wishes might leave your loved ones uncertain, scrambling, or even fighting with one another – hardly an ideal state of affairs.
Whether you have millions or thousands to pass on, estate planning can be beneficial and give your family the clarity they deserve. And taking action contributes to a more intentional generations wealth planning strategy.
Why Should You Make An Estate Plan?
One of the primary goals of estate planning for generational wealth is to help extend the financial stability you have worked so hard for to future generations. As you can guess, this does not magically happen on its own; it takes careful thought, deliberate planning, and seeking out professional advice. This can be especially relevant for families in Western Pennsylvania, where it is common for assets like family businesses, property, or land to pass down to the next generation.
Estate planning for generational wealth allows you to convey not only how you want your estate to be handled, but also who you want to manage your financial affairs in case you become unable to. Additionally, it can also mean choosing someone to make medical decisions for you should you become incapacitated.
Conventional wisdom suggests that you choose two different people for your financial and medical needs. One reason for this is that you may not know someone capable of handling both financial and health issues. You may not, for example, want to choose someone who is qualified to care for your health needs, but who struggles to manage their own finances, to look after yours.
Moreover, if you have significant assets, it could become a conflict of interest if the person in charge of your health care is also a beneficiary of your assets (many a true crime drama has shown this to be unwise).
What To Explore When Creating An Estate Plan
1. Wills
Wills are possibly the most commonly recognized end-of-life document. They determine who gets what when you pass. Wills can be an important first step in estate planning.
They will list your beneficiaries, the assets that go to each beneficiary, and the executor (the person who manages the distribution of your will). If you have children or you are the custodian of any minors, your will will also name their guardian.
While having a will is sufficient for many people, it may still require probate. Probate is when the court verifies that your will is a legitimate, legal document that must be followed. It can take time and money to verify wills in this way – but you can avoid this by using a trust.
2. Trusts
Trusts are similar to wills, and may be a more efficient option if you are considering estate planning for generational wealth. One benefit of trusts is that they do not need to go through probate. Like wills, trusts can be executed after you pass away.
Also like wills, trusts will detail who gets what portion of your assets, but the distribution of those assets does not need to wait until you pass away. Official trust documentation can also delineate what should happen if you become incapacitated.
Let’s examine three common types of trusts.
Revocable Trust
A revocable trust allows you to alter or end it at any point up to your death. It can be used to transfer your assets to your beneficiaries and is managed by a trustee whom you appoint, in accordance with your wishes.
It is important to know that a revocable trust’s earnings from any assets must be reported on your personal tax return.
Irrevocable Trust
An irrevocable trust, on the other hand, cannot be changed without taking legal steps. You would either have to go to court to have it changed or find an attorney who can legally change it outside of court.
Since an irrevocable trust is usually created as a separate entity, taxes are filed on behalf of the trust, rather than you. Another advantage is that this kind of trust is better protected from creditors if you are sued. This makes them particularly useful in advanced generations wealth planning strategies.
Charitable Trust
As the name suggests, a charitable trust consists of funds or assets set aside for a charitable, 501(c)3 organization. It can be set up as one of two primary types of charitable trusts.
The first is a charitable remainder trust (CRT). This trust pays your family a specific amount first, before any excess funds go to your chosen charitable organizations.
The second is a charitable lead trust (CLT). This type pays your designated charities a predetermined amount first, before the remaining amount is disbursed to your heirs.
3. Beneficiary Designations
A beneficiary is the person, trust, or organization to whom you have decided to leave some or all of your assets. You will need to designate beneficiaries for any will, trust, bank account, investment products, or life insurance policies.
Choosing beneficiaries for each of these allows for a clear understanding of how you want your assets distributed. You do not need to have just one beneficiary. Many of the products listed below will allow you to allocate your resources to more than one person.
At Iron Point Financial, we recommend that you choose both a primary and a secondary (contingency) beneficiary, wherever necessary. The secondary beneficiary receives the allocation if your primary beneficiary is deceased or unable to receive the benefits. We also recommend reviewing your beneficiaries yearly, or when you experience a major life event.
There are multiple ways to choose beneficiaries while estate planning for generational wealth. You could choose to:
- divide it equally among any family (or friends) you want to share with;
- base the distribution on who needs it the most; or
- partition it based on the relationship you have with each beneficiary.
4. Powers of Attorney
A power of attorney gives another person the right to make decisions on your behalf. Choosing the right person for each power of attorney requires you to assess your options thoroughly. We will address three main financial options here, with medical options discussed in the next section. These decisions also play a role in protecting your generations wealth planning efforts.
General Power of Attorney
A general power of attorney authorizes a person to manage your personal or business affairs if you are not present to do so (e.g., if you are out of the country). They can pay bills for you, conduct business, or employ professional help, such as a lawyer, as necessary.
This type of power of attorney ends either when you dissolve it or when you become incapacitated. Choosing a capable person for this role is important.
Durable Power of Attorney
A durable power of attorney goes a step further than the general power of attorney by allowing someone to take over your personal or business dealings even if you are incapacitated. This power of attorney becomes active either after the document is signed or when a physician determines you to be incapacitated.
Having a durable power of attorney removes the need for legal involvement – an important feature during what can be a very emotional time. You may want to choose someone who knows how you run your personal and/or business affairs.
Financial Power of Attorney
A financial power of attorney empowers someone to handle financial and legal matters for you in the event you are unavailable to do so. Like the general power of attorney, it ends if you become incapacitated. It can be used for short- or long-term options.
However, you could choose to add a durable power of attorney clause to your financial power of attorney, which either allows the designee to continue to care for your finances, or your durable power of attorney to take over, in the event you become incapacitated.
As with the powers of attorney we have discussed above, choosing someone who is financially savvy is essential in the context of estate planning for generational wealth.
5. Healthcare Directives
There could be times in your life when you may be unable to make healthcare decisions. Thankfully, you have the opportunity to make some of those choices before those situations arise.
Along with these documents, it can be helpful to initiate those difficult family conversations about what you do and don’t want ahead of time. It could make your end-of-life situation more palatable for them if they know that they are doing because they know what you have requested.
There are two types of healthcare directives we will address in this section: living wills and healthcare (or medical) power of attorney.
Living Will
A living will, also referred to as a physician’s or advance directive, gives medical professionals information on what medications or treatments you do and do not want, and under what conditions. This can include CPR, ventilators, pacemakers, and artificial nutrition and hydration. It can also cover organ and tissue donation.
In your living will, you may also want to include documentation of additional orders such as:
- Do Not Resuscitate (DNR);
- Do Not Intubate (DNI);
- Do Not Hospitalize (DNH); or
- Out-of-hospital DNR, which applies to medical technicians outside a hospital (e.g., emergency medical technicians).
Healthcare/Medical Power of Attorney
Like the powers of attorney we discussed earlier, a medical power of attorney is a document that allows a person to make medical decisions for you if you are unable to do so. Again, take care to choose the right person.
If you don’t have either a living will or a medical power of attorney, the state will choose someone for you. This will usually be your spouse (if you’re married), your parents, or an adult child. It is worth noting that, if you’re not married to your significant other, that person may not have a say in your medical decisions. As another option, the state could choose a close friend of yours, or, in an extreme situation, a physician, (if you have no family).
6. Retirement Account Considerations
Retirement accounts are a key component of generations wealth planning. Your retirement accounts – and especially any Individual Retirement Accounts (IRA) – come with specific governmental requirements. If your spouse is the beneficiary of your retirement account, not much needs to be done. However, the IRS has different rules if your beneficiary is a non-spouse.
After the age of 73, you need to take required minimum distributions (RMD) from your retirement investment products, including 401(k)s, IRAs, and Roth IRAs. When your retirement accounts are transferred to your beneficiary, there are guidelines for determining the yearly RMD. Your retirement account custodian can determine the correct RMD for your beneficiary. The RMD depends on:
- whether you died before or after 2019;
- your relationship to the beneficiary; and
- whether you died before or after the start date of your RMD.
The other option is to take the retirement account as a lump sum, but in that case you will need to report any taxable distributions as gross income on your tax return for the year.
How Do You Design a Solid Estate Plan?
Share your story
One of the most basic ways to start estate planning for generational wealth is to share your story with your family. Talk to your children, grandchildren, nieces and nephews, and other family members about how you came to be where you are today.
Doing so can give them an understanding of the foundation you have put in place, which can empower them to continue building on it. Don’t forget to discuss any struggles or mistakes you dealt with along the way; that may help them respect the money you’ve set aside, instead of taking it for granted. This is an often-overlooked aspect of generations wealth planning.
Talk about your values
Normalize sharing about what is important to you and why. This can include anything from your faith, to your passion for preserving the environment, to your care for others’ needs.
It’s important to welcome your children and grandchildren into practical expressions of what you value. For instance, you might want to volunteer with them at an animal shelter, invite them to help choose charities to donate to, or spend time learning about a pressing social issue together.
Discuss your views on money and wise ways of managing it
Although there are some who think that discussing money is taboo, the real error may be not talking about it. While bragging about your wealth or trying to show it off can be off-putting, it is important to educate your family for healthy future generations’ wealth planning.
If you want your heirs to practice sustainable money management when you’re gone, you might want to teach them practical skills sooner rather than later. You could, for example, set up a small investment account for them – like a donor-advised fund (DAF) for giving, or a money management app.
For either of these options, you could then work with them as they learn the ups and downs of investing, the blessing of being generous, and how to manage their money. The end goal of all of this is teaching them how to manage your assets in the future by giving them experience now. Gestures like these can be vital for sustaining generations wealth planning in the decades, and even centuries, to come.
Work with knowledgeable professionals
If you have substantial assets, you may want to seek advice from financial professionals with the Certified Financial Planner® (CFP®) designation, and especially any CFP®s with experience in estate planning for generational wealth. This could help you clarify whether you are on the right track and not missing any crucial actions.
You may also want to work with Pennsylvania-based estate attorneys to ensure your documents comply with state-specific laws.
Key Takeaways
- Estate planning helps your wealth transfer according to your wishes.
- Trusts can help avoid probate and reduce delays.
- Beneficiary designations override wills in many cases.
- Powers of attorney protect your decisions during incapacity.
- Planning early can improve outcomes for future generations.
Need Help with Estate Planning?
At Iron Point Financial, we have both Certified Financial Planners® (CFPs®)and Retirement Income Certified Professionals® (RICPs®) who can guide you as you maneuver through estate planning for generational wealth. Both designations require extensive education, thorough testing, and a commitment to doing what is best for you.
To find the best solution for your situation, we take time to meet with you to learn about your lifestyle, vision, and values, before organizing your assets into a personalized estate planning roadmap.
Our aim is to walk with you on this new leg of your financial journey and to help you finish well for your family. Thoughtful estate planning for generational wealth can help to ensure your legacy lives on for generations to come.
If you would like to start or review your estate planning for generational wealth, why not schedule an appointment today to meet with us? We would love to get to know you and to start walking with you on your financial planning journey. Strong generations wealth planning starts with intentional decisions today.
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Iron Point Financial is here to empower you to secure a brighter tomorrow. We operate physical offices in Grove City, PA and Greenville, PA.
We primarily serve residents of Pennsylvania, Ohio, West Virginia and Florida but we also have security registrations for 22 other states across the continental USA.
Further Reading
Disclosures
- The opinions contained in this material are those of the author, and not a recommendation or solicitation to buy or sell investment products.
- This information is from sources believed to be reliable, but Cetera Wealth Services, LLC cannot guarantee or represent that it is accurate or complete.
- The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing such strategies.
- For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Wealth Services LLC nor any of its representatives may give legal or tax advice.
