Estate Planning for Future Generations

A startling 90% of wealthy families lose their wealth by the third generation; let that number sink in, 90%.1

In fact, you don’t have to look hard to find an example of a fortune lost by a prominent family. Cornelius Vanderbilt built his wealth in railroads and shipping; at the time of his death in 1877, he had amassed what would have been more than $200 billion in today’s dollars.2 While Cornelius lived a relatively modest lifestyle, his estate was squandered by his heirs who lived lavishly, using their wealth to achieve prominence in the New York social scene and build extravagant houses during America’s Gilded Age. His children and grandchildren spent money so freely there wasn’t a single millionaire among the 120 people who attended a Vanderbilt family reunion in 1972.3

After hearing about the Vanderbilts you may feel your heirs aren’t prepared to inherit your wealth. If so, you aren’t alone – 58% of Baby Boomers aren’t confident in their children’s ability to use an inheritance responsibly.⁴ But how can heirs – from the second, third or fourth generation – be so ham-handed with their wealth? Reasons vary, of course, but communication (and the lack thereof) is often the answer. It isn’t unusual for people to keep money matters private, even within the confines of family. Nearly two-thirds of people surveyed (64%) admit they have disclosed little to nothing about their wealth to their children.4 In many families, talking about money is taboo, and most will put having the conversation off until something urgent happens and they have no choice. With emotions running high and the family in a place that already feels precarious, last-minute conversations can often lead to rash decisions, resulting in hurt feelings, preventable mistakes and even the loss of wealth. With so much at stake these simple guidelines may help you create a wealth transfer plan:

  1. Create and communicate your plan: Bequests from large to small should come with detailed instructions on how the estate should be managed and disseminated. Use a family meeting as an opportunity to explain your requests and prevent confusion among heirs.
  2. Review your plan: Making adjustments when there has been a change of circumstances like death or divorce is essential to keeping family members content and minimizing future disagreements.
  3. Organize your documents: Having all of your important documents organized will give you and your heirs peace of mind. Remember it’s not just your financial documents. Tax statements, insurance policies, employment and military records, medical history and advanced health care directives should be available for your loved ones when necessary.
  4. Involve your financial advisor: When an executor has been identified, invite him/her to the annual meetings to openly discuss financial matters with your advisor. This will be an opportunity for the executor to ask questions to the person who knows the details of your finances. And don’t be shy about asking your advisor to meet all of your heirs. By forging this relationship early, your heirs will better understand your wishes and have a resource to turn to if things get complicated.

Having an estate plan communicates many things to those you leave behind. It states what is important to you and who you trust to be in charge. Because it is your final statement, it carries great significance. Remember, the worst final bequest is an absent plan.

1Williams Group wealth consultancy. (2014).

2Hargreaves, S. (2014, June 2). The richest Americans in history

3Kleeper, M. & Gunther R. (1996). The Wealthy 100: From Benjamin Franklin to Bill Gates-A Ranking of the Richest Americans, Past and Present.

4U.S. Trust. 2017 U.S. Trust Insights on Wealth and Worth®.

Traditionalist, before 1946; Baby Boomer, 1946-1964; Generation X, 1965-1979; Millennial, 1980-1995; Generation Edge, after 1995

This information is provided for informational purposes only. Waddell & Reed, Inc., believes the information has been obtained from sources considered to be reliable, but does not guarantee the accuracy of the information provided.

Please note that the information provided may include references to concepts that have legal, accounting and tax implications. It is not to be construed as legal, accounting, or tax advice, and is provided as general information to you to assist in understanding the issues discussed. Waddell & Reed, Inc. does not provide tax, legal, or accounting advice. This information is not meant as financial or investment advice pertaining to your personal situation. The selection of appropriate investment, insurance, or planning options and/or strategies should be made on an individual basis after consultation with appropriate legal, tax and financial advisors..

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