Generational Wealth Planning - Santander
Pass down your prosperity with a generational wealth plan
Pass down your prosperity with a generational wealth plan
What will happen to the wealth you have accumulated in the next generation? It is a question that isn’t always comfortable, but if answered in advance it can create comfort for generations to come.
Generational wealth planning outlines how to pass down your hard-earned assets and keep your investments growing in the future. Whether passing down stocks, bonds, or other investments like real estate and family businesses, having a plan sets up your family for success. Without a plan, you may end up being part of the seventy percent of wealthy families that lose their wealth by the second generation, 90% of which lose it by the third.1
Why families aren’t talking about generational wealth planning
In the midst of the largest wealth transfer in modern history, with $70 trillion being handed down between now and 20422, it would seem obvious that younger generations should be prepped by their families to manage this wealth, but Santander Financial Consultant Surya Sapra said this isn’t necessarily the case.
"Parents don’t know how to bring their kids into [wealth planning conversations] and [parents] aren't trustful,” Sapra said, noting that he brings young adults into the process with his clients as early as possible. “I believe in bringing in the next generation and having a conversation with them.”
By not bringing children into conversations or having family meetings about finances, important communication can be lost, Sapra noted. This can make wealth transfers - which fail 70 percent of the time because heirs aren’t ready for the responsibility3 – even harder.
Sapra emphasized the importance of financial education and added that those inheriting wealth need to know the basics like the appropriate contacts and where portfolio investments are, to more complex things like how to grow assets once they have been passed down. By setting up effective communications and educating future generations, your heirs can understand your portfolio strategy and where your assets are invested.
Building multi-generational wealth
Focus on mitigating risk
Generational wealth plans are not one-size-fits-all. Goals that are right for most people at a certain age or life benchmark may not be best for you.
A 70-year-old client might have the risk capacity of a 30-year-old
“A 70-year-old client might have the risk capacity of a 30-year-old,” Sapra said, adding that one of the most important elements in generational wealth planning comes down to mitigating risk. To create a plan that helps you build your wealth you should assess not only how your investments are projected to grow but also how external factors like bear markets and higher tax plans could impact your savings timeline.”
A safer wealth generator, like a whole life insurance policy, can help mitigate risk and protect wealth. Policies that include guaranteed death benefits and high cash values can continue to grow uninterrupted which make them a more predictable investment.
Make sure your money isn’t competing against itself in the long-term
You know diversification is right, but is it possible to over-diversify? With stocks, bonds, mutual funds, real estate, life insurance, and family business investments etc. there is a chance “your money may be competing against itself,” Sapra said.
While a diversified portfolio helps to manage risk and reduce the volatility of your assets over time, diversification without proper communication can lead to holding funds with different strategies that in fact own large concentrations of the same stocks.4 This can become even more complicated when you pass down your assets to future generations. A financial consultant can help you to ensure your assets aren’t playing against each other and to set up clear communication around asset allocation.
Consider tax-efficient ways to grow your portfolio
Executing on tax-efficient withdrawal strategies that align with your timeline are important to consider when it comes to building your generational wealth.
When you adjust appreciated portions of your portfolio like real estate investments, stocks, or ETFs it can trigger tax costs by unleashing taxable capital gains. If your goal is to reduce risk and set yourself up for better returns going forward, you can end up incurring tax bills if your tax strategy isn’t right
As you create your generational wealth plan, consider tax-efficient ways to grow your portfolio like adjusting tax-sheltered accounts first, tax-loss harvesting5, or making qualified charitable donations (QCD) to your portfolio.6 For example, with a QCD investors 70½ or older typically can transfer as much $100,000 a year directly from an IRA to a qualified charity without incurring taxes on the distribution.7
Transferring your wealth
Estate planning is one of the most crucial elements of building generational wealth. An estate plan outlines the people or places that you want to receive your wealth when you are gone. This requires both legal and financial input when it comes to determining how your assets will be preserved, managed, and distributed. It’s important to review and revisit these documents and strategies on a regular basis to ensure keeping up with changing laws, and to adjust clients’ goals as necessary.
Depending on your goals, wealth-building strategies to consider can include things like setting up a family trust. A family trust can help to minimize estate taxes once the trust grantor passes away.8
While an estate-planning document is a key element of transferring your wealth, a wealth transfer plan is an additional element that helps outline important decisions and actions that need to be taken to pass on wealth. Wealth transfers include things like introducing family members to financial consultants early on, discussing methods of transferring wealth, and communicating family goals and values.9
As a Santander Private Client, you have access to customized financial planning with Santander Investment Services that can help you to accumulate wealth and reach goals that generations to come haven’t set yet. Discover more benefits of being a Santander Private Client at santanderbank.com/privateclient.
1 Time Magazine. “70% of Rich Families Lose Their Wealth by the Second Generation” https://time.com/3925308/rich-families-lose-wealth/
2 Wall Street Journal. “Older Americans Stockpiled a Record $35 Trillion. The Time Has Come to Give It Away.” https://www.wsj.com/articles/older-americans-35-trillion-wealth-giving-away-heirs-philanthropy-11625234216
3 Stanford Business. Preparing Heirs: Five steps to a Successful Transition of Family Wealth and Values. https://www.gsb.stanford.edu/alumni/news/books/preparing-heirs-five-steps-successful-transition-family-wealth-values
4 Consumer Reports. Are your investments too diversified? https://www.consumerreports.org/cro/2014/07/are-your-investments-too-diversified/index.htm
5 Wall Street Journal. Tax Strategies You Don’t Want to Miss Before the End of the Year https://www.wsj.com/articles/important-tax-strategies-before-end-of-year-11631814992?mod=searchresults_pos7&page=1
6 Kiplinger. How to Help Your Family Wealth Last for Generations https://www.kiplinger.com/retirement/estate-planning/601798/how-to-help-your-family-wealth-last-for-generations
7 Morningstar. 4 Strategies for Improving Your Portfolio Without Triggering Extra Taxes https://www.morningstar.com/articles/947053/4-strategies-for-improving-your-portfolio-without-triggering-extra-taxes
8 Smart Asset. What Is a Family Trust, and How Do You Set One Up? https://smartasset.com/financial-advisor/family-trust
9 Forbes. The Difference Between Having An Estate Plan And A Wealth Transfer Plan https://www.forbes.com/sites/feeonlyplanner/2016/07/18/the-difference-between-having-an-estate-plan-and-a-wealth-transfer-plan/?sh=30cbd2801a9a
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