Generational Wealth Tips for High-Net-Worth Investors

Generational Wealth Tips for High-Net-Worth Investors

September 15, 2023

Wealth expands life choices, and generational wealth offers greater freedom by eliminating financial worries and offering the next generation a significant financial advantage. Here's how to protect your assets to transfer your wealth to your family and loved ones efficiently. 

Generational wealth—sometimes referred to as intergenerational wealth, multigenerational wealth, legacy wealth, or family wealth—is financial assets passed down from generation to generation.

Having the privilege of seeing your family's hard-earned legacy connected down through the years is a humbling experience. But if you have built upon that wealth in your lifetime, you must ensure its strength and longevity to do the same for your loved ones as your ancestors once did for you. 

The Great Generational Wealth Transfer

Baby boomers and the silent generation will bequest a total of $84.4 trillion in assets through to 2045, according to an analysis by financial market intelligence firm Cerulli and Associates. With $72.6 trillion going directly to heirs. The transfer of wealth from baby boomers will account for $53 trillion or 63% of all transfers, while the Silent Generation will hand down $15.8 trillion. As millennials and Gen X prepare to take the reins, high-net-worth investors must adopt strategies that cater to multi-generational needs and investment goals. 

And now worrying figures from Gobankingrates show smart investments and money management skills are not always passed down with wealth. A staggering 70% of wealthy families lose their wealth by the next generation, with 90% losing it the generation after that.

Some millionaires were born into wealth and privilege, but many others found their fortune through good ideas and the hard work needed to bring those ideas to life. Whichever way you have built your wealth, the importance of multigenerational wealth transfer has never been more paramount. 

Impact of Generational Wealth Transfer on the Economy

Generational wealth transfer has become a significant focal point for investors due to its profound implications for financial markets, investment strategies, and economic trends.

Interest rates are at a 22-year high as the Federal Reserve continues to battle inflation, and recession fears remain — but the US economy is holding in there. But is there a connection between the economy's resilience and the 'Great Wealth Transfer'? Billionaire investor Ray Dalio says a resounding "yes."

"There was a big government-engineered shift in wealth from 1) the public sector (the central government and central bank) and 2) holders of government bonds to 3) the private sector (i.e., households and businesses)," he wrote.

"This made the private sector relatively insensitive to the Fed's very rapid tightening to a more normal monetary policy. As a result of this coordinated government maneuver, the household sector's balance sheets and income statements are in good shape, while the government's are in bad shape."

In other words, the federal government took on a lot more debt, and the central bank printed far more money. This causes the US balance sheet to deteriorate and contribute to inflation while benefiting the private sector.

Dalio says it's highly likely that as the cost of interest payments keeps rising, the government will need to sell more debt, leading to a "self-imposed debt spiral." "In my opinion, we are at the beginning of a very classic late, big cycle debt crisis, when the supply-demand gap, when you are producing too much debt and have a shortage of buyers," he told a Bloomberg conference in June.

But while the transfer can be terrible for the Feds, it is still great news for American households. As this generation begins to pass on their assets, the total estimated wealth transfer amounts to nearly $85 trillion—eclipsing any from the past. Boomers’ millennial children stand to gain the most—$73 trillion is projected to be passed down through 2045—and an additional $12 trillion will be donated to charities.

Protecting and Passing on Your Wealth

The Great Wealth Transfer of $73 trillion being passed to the next generation can shift consumer behaviors, preferences, and spending patterns. So, investors must pay attention as it can influence the demand for things like real estate or stocks - and potentially the amount of wealth you have for the next generation. For example, giving Gen-X and Millennials' buying power can change what is popular, affecting assets like real estate, stocks, and sustainable investments.

Adapting investment approaches to align with the preferences and priorities of inheriting generations is crucial for capitalizing on new opportunities and staying ahead in an evolving economic landscape. And it starts with protecting the legacy you have built. Let's look at some tips to help prepare your family for this historic change.

Tip #1: Having a Comprehensive Estate Plan

Your first step to navigating this complex wealth management and transfer realm is having an estate plan. This initial step provides a roadmap for the distribution of your assets and guarantees that your wishes will carried out in the event of incapacitation or passing. Estate plans are for everyone with assets, including high-net-worth individuals. Here are some key points to consider:

  • Asset Distribution: An estate plan allows you to specify how you want your assets, including property, investments, and personal belongings, to be distributed among your beneficiaries. Without a clear plan, your assets might be subject to intestate laws, which can lead to unintended outcomes.
  • Beneficiary Designations: Through an estate plan, you can designate beneficiaries for various assets, such as life insurance policies, retirement accounts, and investment accounts. This transfers assets directly to the intended recipients, avoiding delays and potential disputes.
  • Business Succession Planning: If you own a business, an estate plan can outline how it will be managed or transferred to successors, ensuring its continuity and providing for your family's financial future.

Life is constantly changing, and so should your estate plan. Changes in your family structure, financial situation, or legal regulations might necessitate updates to your plan to guarantee it remains aligned with your goals. A Fiduciary Advisor can help you with any changes that life may bring and help adapt your plan accordingly.

Tip #2: Beating The Tax Deadline For Wealth Transfers

The wealth transfer comes with its fair share of tax implications. Current estate tax laws allow individuals to transfer up to $12.92 million in assets with no gift tax implications. However, by the end of 2025, these amounts will drop in half. To reap the benefits of current estate gift taxes, strategically planning and executing these transfers well before tax deadlines is crucial. 

High-net-worth investors can explore opportunities like the annual gift tax exclusion, which allows individuals to gift a certain amount per recipient each year without incurring gift tax. This strategy can minimize the taxable estate while fostering a culture of giving within the family. Collaborating with financial professionals with extensive tax planning experience and wealth transfer knowledge can provide invaluable insights into navigating complex tax laws and optimizing wealth preservation to pass on to your loved ones.

Tip #3: Spousal Lifetime Access Trusts

Trusts are a great tool to protect your wealth. Specifically, Spousal Lifetime Access Trusts (SLATs) offer a creative solution for high-net-worth investors aiming to support their spouse while still gifting assets to heirs.

When assets are transferred into an irrevocable SLAT, they are effectively removed from the grantor's estate, reducing estate tax liability upon their passing. This strategy allows high-net-worth individuals to leverage their gift tax exemption and protect a significant portion of their wealth from potential estate taxes.

In determining whether a SLAT is right for you, the first step is to work with your financial advisory team to build a personal balance sheet. This creates an accurate inventory of all of your assets and liabilities, a record of how they’re titled, and details about the liquidity features of each item. Next, you’ll build a financial plan based on your projected lifestyle.

Tip #4: Dynasty Trusts

Dynasty trusts are another irrevocable trust that extends protection across multiple generations, allowing wealth to flourish through changing times. One of the main benefits of a dynasty trust is that it allows you to transfer assets to future generations while minimizing tax liabilities. 

By keeping assets within the trust, the trust can continue to grow and provide for future generations without being subject to estate taxes at each generation's passing. As regulations and laws around trusts vary, consulting a Fiduciary Advisor is crucial to tailoring these structures to specific family objectives.

Tip #5: Working With a Fiduciary Advisor

The Great Generational Wealth Transfer should be a wake-up call for many Americans who have not yet begun their Estate planning. This can be especially challenging for those with a high-net-worth estate. You want to protect your family assets and gain the peace of mind knowing you're prepared and in control, whatever the future may bring.

Working alongside a Fiduciary Advisor is one of the best ways to prepare you and your family for the intergenerational wealth transfer. A Fiduciary advisor can help create your estate plan to meet your specific needs. 

At Agemy Financial Strategies, our trusted team can help you create a trust for your beneficiaries that clearly outlines how your wealth should be distributed and invested and who will be entrusted with your assets. 

Contact us today to schedule your complimentary consultation.