Why Multigenerational Legacy Planning Is Crucial for Strategic Wealth Management

Howard Kaye

Ensuring a lasting legacy is the goal for many clients who seek the advice of financial advisors, but many legacy planning strategies fall short in accounting for the complexities of multigenerational wealth transfer. Too often, affluent families default to naming children, grandchildren, and favored charities as beneficiaries to their estate with little thought toward wealth preservation—or how the assets they’ve spent a lifetime building will benefit future generations. However, multigenerational legacy planning is a critical aspect of a comprehensive wealth management strategy.

Multigenerational legacy planning is, indeed, complex; as an investor, you must take into account not only your living heirs but perhaps those still unborn, such as your grandchildren’s grandchildren. With the right financial planning tools, however—and the help of a wealth concept expert—your estate can have a direct impact on the lives of people 50 or 100 years in the future.

A properly designed and executed multigenerational legacy plan allows you to transfer your wealth with as few probate, taxation, and risk issues as possible. While the process can initially appear overwhelming, fortunately, with the help of a legacy-planning expert, you can begin the preparation for creating an effective plan.

Preparing for Multigenerational Wealth Transfer

With more than $30 trillion in assets expected to transfer between generations over the next 30 to 40 years, the risk of a poorly executed financial legacy plan could be significant, with investors paying upwards of billions of dollars in excess taxes. If you do not currently play an active role in your wealth management, it is important to remember that, after you have passed, you will no longer be able to make decisions about how your estate affects and benefits future generations.legacy planning for multiple generations

A generational estate plan must first establish goals and objectives. Traditionally, legacy planning has focused on:

  • College savings for grandchildren and great-grandchildren
  • Scholarship programs at an alma mater
  • Foundations for synagogues, hospitals, and other organizations that may have long-term capital expenditure needs

Once you’ve established your investment goals, it’s time to work with a wealth management professional—one who understands wealth maximization concepts beyond stocks and bonds. A multigenerational estate plan can involve creating trusts, endowments, and foundations; it is essential that you work with experienced professionals such as licensed life insurance advisors, attorneys, and tax professionals to avoid probate issues and to maximize the transfer of wealth to your future heirs.

Tax Planning: A Crucial Aspect of Multigenerational Legacy Planning

Having a clear goal for building a legacy is important but equally crucial is the goal of protecting assets from taxes. In fact, without proper advisement and planning, the value of your estate could shrink by up to 50% post taxes. This not only affects your ability to achieve a multigenerational legacy goal, but is counterproductive to any of your efforts focused on building your wealth.

Life insurance… not only offers a guaranteed amount to your heirs but, if properly structured, the proceeds are also income and estate tax-free.

Life insurance is an excellent vehicle for legacy planning. It not only offers a guaranteed amount to your heirs but, if properly structured, the proceeds are also income and estate tax-free. For example, a $2 million life insurance policy offers your heirs the full $2 million as an inheritance. Other assets, such as an IRA or stock portfolio, on the other hand, are subject to market volatility and estate taxes. In addition, the life insurance cost is usually a very small fraction of the death benefit, so there is great leverage.

An Irrevocable Life Insurance Trust (ILIT) is the best way to leverage life insurance for multigenerational legacy planning as it protects your life insurance investment from estate taxes, resulting in greater wealth for future generations. By placing policies into an ILIT, it becomes part of the trust and not your estate; therefore, the policy is not subject to estate taxes. The result is a greater percentage of your assets passed on to following generations. An experienced insurance advisor will be an expert in the nuances of these trusts, while traditional brokers and advisors may not fully understand them, or are unaware of the benefits of ILITs as a wealth building concept.

Optimizing a Dynasty Trust to Plan Your Legacy

For significant estates, a dynasty trust can be leveraged to protect and preserve family wealth from the unexpected, such as divorce or a financially irresponsible beneficiary. When you create a dynasty trust under the guidance of a wealth management expert, you can control to what extent—and when—assets are made available to future beneficiaries.

Transfer taxes associated with multigenerational estates are mitigated through a dynasty trust. Coupled with life insurance and the tax-free exemptions detailed above, a dynasty trust can be an ideal tool to maximize the value of your estate in perpetuity.

Immortalizing Charitable Giving for Decades to Come

Philanthropic interests, as well as family members and loved ones, can be included in your multigenerational legacy planning, enabling your wealth to transcend your lifetime. Charities will continue to receive your gifts in perpetuity—if the proper plan is implemented. Insurance experts recommend establishing a significant tax-free death benefit naming the charity as beneficiary so that the principal sum can be conservatively invested in order to generate an ongoing, perpetual income. In addition, Charitable Gift Annuities can be a solution to enhance your generosity to an organization,thereby maximizing your charitable giving.

Naming a charity as a beneficiary on a life insurance policy offers legacy opportunities for philanthropic gifting. The proceeds from a sizable life insurance policy can help fund capital improvements and could potentially provide greater benefits over annual donations of a fixed amount. A single sizeable donation resulting from a life insurance policy could, for instance, fund a community or educational institution that will have an impact on an entire town or neighborhood for generations.

…an expert in life insurance can help you refocus on more significant financial goals beyond your retirement and immediate heirs, maximizing your estate for generations to come.

One common theme around legacy planning, regardless of your estate’s specific goals, is how to most effectively preserve your assets so they can benefit as many future generations as possible. Start with identifying your goals, then consult with your trusted wealth management team to ensure you are building a legacy that will truly outlive you.

Not all financial advisors are equipped to handle the complexities of a multigenerational estate plan. Financial planners typically focus on retirement planning and wealth accumulation during your lifetime via stocks and bonds, but an expert in life insurance can help you refocus on more significant financial goals beyond your retirement and immediate heirs, maximizing your estate for generations to come.

Our expert Howard Kaye Insurance advisors want to help ensure that you build a legacy. Together, we can create a multigeneration legacy plan that includes decades of future heirs as well as the charities that matter most to you. Contact us today online or by calling 1-800-DIE-RICH to get started.

Image courtesy Pixabay user jcall

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estate planning using your 401k or your IRAira qualified charitable distribution