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A Guide to Wealth Transfer Planning


Whether you’ve been aware for some time that you’ll eventually need to pass on a substantial amount of wealth to loved one, or you’ve more unexpectedly come into a large sum of money and don’t know how to plan for its future, wealth transfer is an important process to be aware of and have a plan for. Although independent research is useful to get you started, speaking to a professional financial advisor could help you get the best handle on how to go about moving your money in this way.

What Is Wealth Transfer?

Wealth transfer refers to the movement of wealth from one person to another. This is facilitated through trusts, wills and other estate planning tools.

The parties receiving the transfer of assets in this way are beneficiaries, and they usually receive assets when the owner of the wealth or assets passes away. The transfer happens through various financial planning strategies, including wills, estate planning, life insurance or trusts.

Some key considerations in wealth transfer planning include the size of the estate, who the beneficiaries are, approaches that result in low taxation rates and high interest rates, as well as minimizing risk.

You’ll also have to consider to whom you want to eventually transfer your wealth. These are your beneficiaries. They may likely be family members, if you are planning to pass on your estate or assets to the next generation in your family line. Tax efficiency is an important consideration when you think about this. Additionally, gifts, donations and charitable planning might also be part of your plan.

Trusts vs. Wills

Image shows a person counting stacks of coins on a table next to a model home. Property can be one type of asset that is passed on in generational transfer of wealth.

Transfer of wealth is facilitated through various estate planning tools. Some of the most common of these include trusts and wills, both of which can have beneficiaries.

Wills are documents that spell out instructions or directions for what should happen to your assets after you’ve passed on.

Trusts, however, are legal entities that own and manage assets on behalf of the beneficiaries.

Both can be found in different formats. Types of wills include a simple will, joint will, living will and more. Trust types include marital trusts, charitable trusts, family trusts and life insurance trusts, among others.

Finding the Right Financial Professionals to Work With

The first step is to do research and also have the proper financial advisors to consult if you need professional expertise. Proper information is necessary in order to move forward with a plan that optimizes wealth not only for the asset holder currently but also for their beneficiaries in the long run.

Consulting a financial professional may be an ideal next step. There are various types of financial professionals out there, but not all of them are equipped to work with clients at the same level. Some firms specialize in financial planning and offer more short-term services for one-off consultations or projects. Investment advisors will strategize around a specific investment plan for your assets. Wealth advisors and wealth managers, on the other hand, usually work with more high-net-worth and ultra-high-net-worth clients and oversee the growth and management of their wealth over time.

The main goal of a wealth advisor is to analyze your financial situation and offer a holistic plan that is specific to you as the client. A wealth advisor won’t simply offer investment advice, for example, but try to understand how investing fits into your broader financial plan.They might offer financial planning, investment management, retirement planning, charitable contribution planning, tax planning and estate planning – all rolled into one large and far-reaching plan. While wealth managers don’t necessarily have training or expertise in all these topics, they will usually work with other experts or representatives who work with the client – such as tax preparers and lawyers – to create a full-fledged plan that would likely be aligned with your larger wealth transfer goals.

Bottom Line

Image shows one person's hand placing a key in another person's hand as a symbol of transfer of wealth.

When thinking about wealth transfer planning, it’s as important to remember that you need to manage your money for right now as well as for later. Establishing how much of your wealth and assets you will need in order to maintain your current expenses and lifestyle is important.

Whether you tackle this on your own or with an advisor, you’ll have to account for some of the following factors: budgeting, cash flow, income streams, expenses, tax efficiency, trusts vs. wills, beneficiaries, charitable planning and more. Trusts, wills and other estate planning tools can help you sort all of this out so that you’re as prepared as you can be.

Tips for Estate Planning

  • Determining your overall estate planning needs is an important step to make sure that your financial affairs are in order – especially if something happens to you and you aren’t able to make your own decisions. Use our comprehensive estate planning guide to understand all of the components of estate planning.
  • It’s never too late to start building an emergency fund – because even retirees need one. Use our free budget calculator and savings account reviews to help allocate and set one up for yourself.
  • Seek out professional financial advice. You wouldn’t run a marathon without a trainer, would you? So why not apply the same logic to your long-term money goals? Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool can pair you with up to three financial advisors in just five minutes. If you’re ready to connect with someone, get started now.

Photo credit:  ©iStock/Ridofranz, ©iStock/sefa ozel, ©iStock/dblight