Creating wealth for generations to come is the ultimate dream for many investors. Turning that dream into a reality starts with one small step after another. In this article, we’ll explore generational wealth from a family perspective. While tax planning may certainly be a part of the discussion with your financial planner, we will save that for another article.
If you have done well saving for retirement, you may have more than you need. As far as problems go, this is a great one to have, but it creates its own questions. What should I do with it? Should I give some to my children, and if so, when? How much can I afford to give my children? Can I give to my children without enabling them? How do I prepare my children to be responsible with money and manage wealth? Having an open line of communication early and often is pivotal on the road to real generational wealth.
Many of us listen to the safety briefing on airplanes before takeoff, instructing parents to place the oxygen mask over themselves before assisting children in the event of an emergency. While this goes against every parent’s instinct, there is a good reason for it. You cannot help your children if you do not have enough air to breathe. The same applies to financial health. Before deciding how to give to your children, we first need to answer the question, “How much can I afford to give?”
Annual meetings with your financial planner can help. The first step is understanding your annual expenses. Then build a financial plan modeling your long-term spending and review it each year as circumstances change. Having a long-term plan in place provides the framework needed to further explore giving options.
Some things to consider are whether you want to make gifts to your children today and leave a smaller inheritance in the future or forgo giving today in favor of a larger inheritance later. While everyone will answer this question differently, gifting today may be more beneficial for you and them. For example, if your adult children are financially independent and supporting their own children, giving today may help pay for childcare, college, or allow them to take a special vacation. Additionally, this can decrease your overall estate size and eliminate or reduce the risk for future estate taxes. On the other hand, if you forgo giving today in favor of a larger inheritance later, your children may be retired themselves when they receive it and may not need it.
Factoring annual gifts into your financial plan can give you confidence and peace of mind knowing these gifts will not create a problem for you in the future.
If you’re a saver, you may be concerned giving to adult children will prevent them from developing healthy financial habits, so here are two simple things to discuss with your financial planner.
Regardless of how or when you decide to gift, the ability for the second generation to manage their spending is an important part of generational wealth. Parents who are savers naturally want their adult children to be savers. But there are no guarantees the second generation will adopt the same behaviors that created their parents’ wealth in the first place. While there are no silver bullets, generational wealth starts with small daily behaviors. Consider discussing these two ideas with your financial planner.
For many clients, thinking about how and when to give to the next generation is daunting. Ensuring the wealth you worked hard accumulating is used to benefit generations to come is where an Apella Advisor can add immense value. Creating a financial plan aligned with your values and collaborating on ideas to avoid family pitfalls that hurt generational wealth are some of the ways we help clients manage generational wealth.
Disclosures:
Apella Capital, LLC (“Apella”), DBA Apella Wealth is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered or excluded or exempt from registration requirements. Registration with the SEC or any state securities authority does not imply a certain level of skill or training. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, product or any non-investment-related content made reference to directly or indirectly in this material will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may not be reflective of current opinions or positions. Please note the material is provided for educational and background use only. Diversification seeks to improve performance by spreading your investment dollars into various asset classes to add balance to your portfolio. Using this methodology, however, does not guarantee a profit or protection from loss in a declining market. Past performance does not guarantee future results. All data is from sources believed to be reliable but cannot be guaranteed or warranted.
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