Only 45 percent of Americans have a formal estate plan. Without a will or trust, state law determines who receives your assets when you pass. This could mean the assets don’t get distributed the way you and your beneficiaries want. However, even with an estate plan, a situation such as this could still occur. So what steps can you take to avoid this issue?
One Solution: A Wealth Transfer Plan
A more effective solution is to have a wealth transfer plan, which is a comprehensive vision for how your money will be transferred to your heirs upon your death and how those heirs will use that money. Typically, 70 percent of generational wealth is lost in the second generation, and 90 percent is lost by the third generation. One reason is that those who receive a sudden windfall might stop working or might spend the money without much thought for the future. These issues can be more easily avoided with a clear wealth transfer plan in place.
When creating a wealth transfer plan, you should consider the financial goals of your beneficiaries and of your family as a whole. Your beneficiaries might want to consult their financial advisers to learn about ways to make their inheritance last as long as possible. It’s also a good idea to discuss whether the money will be transferred through direct gifts or through a trust.
Getting Help with a Wealth Transfer Plan
Taking the time to engage in estate planning, including creating a clear wealth transfer plan, can reduce confusion and the possibility of a legal challenge after death. An estate planning attorney can review your current estate plan documents to ensure they meet your needs. Your estate planning attorney can also draft new documents that give greater control over who may receive cash or other assets and how they may be transferred.