Consider the “why” when gifting assets
When it comes to gifting assets and passing down an inheritance, too often we fixate on the “how,” but don’t consider the “why”. In other words, although the mechanics of making gifts and transferring assets are important, such setting up irrevocable trusts or net gifts and bargain sales, so too is identifying the greater purpose of wealth and aligning the family around the desired impact.
Why is this important? Consider this. More than 70%t of family wealth is lost generation to generation.* Not because of poor investments or bad financial decisions. The reason is a lack of trust and communication among family members. The good news? You can avoid this fate by taking a comprehensive, holistic approach to passing down assets.
Establish a vision
It is well known that the topic of money can divide many families, but when approached thoughtfully and with inclusive intent, it can actually help bring families closer together. Well in advance of gifting any assets or passing down an inheritance, bring the family together for an in-depth discussion on both the history of and vision for the family’s assets. How was the money made? What were the values that allowed that money to be made? What is the legacy the family wants to leave?
Involve all generations of the family in those discussions and give everyone a voice. Money shouldn’t be a taboo topic. When discussed openly and fairly, exploring the purpose of wealth can excite and engage all generations of a family.
Set guardrails
To help ensure the family’s assets have the desired impact, also establish clear expectations around spending and how and when assets can be drawn down. Make it clear what is acceptable and not acceptable in terms of expenditures and lifestyle. Put guardrails around gifts and inheritances. Often, that is done via the creation of a trust. Ensure everyone is aware of and has bought into those expectations early on.
Align around philanthropy
Few things align a family more than coming together to explore how its good fortune can support the causes and charities the family members’ care about. Not only can philanthropy be beneficial for tax purposes, but it can also reignite younger generations’ sense of purpose.
Even better, there are many more ways to give back today than in the past. Gone are the days when a generation had to pass for a family to make a real impact. Today, giving back is so much more than writing a check. You can touch, see, experience the impact your philanthropy is making. Charitable vehicles such as donor-advised funds and impact investments can enable a family to experience firsthand the difference it is making.
Finally, make sure to seek out the ideas of the younger generations of the family about what they’d like the family’s wealth to accomplish. Some of the most impactful and innovative ideas come from the those who will be leading the world into the future.