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What Is Intergenerational Wealth Planning?


Intergenerational wealth planning is the process of preserving and transferring wealth across multiple generations. This can help you maintain financial stability and preserve a legacy for future family members. This comprehensive approach often includes managing investments, estates and inheritance taxes. By prioritizing intergenerational wealth planning, families can create long-lasting financial security and uphold their values through generations.

Effective wealth planning often requires the input and assistance of experts, including tax advisors, attorneys and financial advisors. Connect with a fiduciary financial advisor today.

Understanding Intergenerational Wealth Planning?

Intergenerational wealth planning involves creating strategies to transfer assets and wealth from one generation to the next. Effective intergenerational wealth planning encompasses a variety of financial tools and techniques, including setting up trusts, planning around taxes and engaging in charitable giving.

The goal is to minimize tax liabilities and protect the family’s wealth from potential risks and legal challenges. Without a structured plan, significant wealth can be diminished by taxes, mismanagement and unforeseen expenses.

But wealth planning is not solely about money. It’s also about preserving family values and ensuring that future generations understand and respect the legacy. This often involves educating younger family members about financial responsibility and philanthropy.

Intergenerational Wealth Planning Strategies

Three generations of a wealthy family stand in front of a large home owned by the family.

Intergenerational wealth planning is often a multi-angled process that touches on an individual or family’s investments, insurance policies, estate plan, business interests and more. Keep in mind that it’s not a one-time task. Regularly reviewing and updating your plans ensures they remain aligned with your family’s changing needs and goals.

Here are eight general strategies aimed at transferring wealth from one generation to the next:

Establishing Trusts

Trusts are a key tool for intergenerational wealth planning. They allow you to manage and protect assets, specifying exactly how and when your wealth will be distributed to future generations. Trusts can help minimize estate taxes and protect your beneficiaries from creditors or divorce settlements.

Strategic Gifting

Gifting is an effective method to transfer wealth across generations. The annual gift tax exclusion allows you to give a certain amount to each beneficiary without incurring gift taxes ($18,000 per recipient in 2024). Gifts that exceed the annual exclusion amount count against your lifetime gift tax exemption ($13.61 million in 2024). Once the lifetime exemption is exhausted, gifts are subject to the federal gift tax. This approach not only reduces the size of your estate but also enables beneficiaries to benefit from your wealth sooner.

Tax Planning

Proactively managing tax liabilities is an important element of intergenerational wealth planning. This may include anticipating and avoiding estate taxes, as well as generation-skipping transfer taxes (GSTT), which may be levied on transfers to grandchildren and future generations.

Education Funding

Funding education is a direct way to invest in the next generation. Using 529 plans or education trusts can ensure that your descendants have the financial resources to pursue higher education. These plans often come with tax advantages, making them a smart choice for intergenerational wealth planning.

Investment Planning

Strategic investment planning is crucial for growing and preserving wealth over multiple generations. By creating a diversified portfolio that balances risk and reward, you can ensure your assets continue to grow. Long-term investments, such as stocks, bonds and real estate, can provide sustained income and appreciation, benefiting future generations.

Life Insurance Policies

Life insurance policies are a reliable means to provide for your family after your death. They can help cover estate taxes, ensuring that your heirs receive their inheritance intact. Life insurance can also serve as a wealth replacement tool if you choose to leave significant assets to charity.

Business Succession Planning

For those with family businesses, succession planning is important. Developing a clear plan for who will take over the business and how the transition will occur can prevent conflicts and ensure the business remains in the family. This might involve grooming a successor, setting up a buy-sell agreement, or creating a family governance structure.

Charitable Giving

Incorporating charitable giving into your wealth planning can offer tax benefits and establish a family legacy of philanthropy. Donor-advised funds and charitable trusts allow you to support causes important to you while reducing your taxable estate.

Challenges to Intergenerational Wealth Planning

A grandfather holds his grandson's hand while walking on the grounds of the family estate.

Despite its benefits, there are several challenges that families face in this process, including complex family dynamics, changing laws and regulations, market risks and economic uncertainty, among others.

  • Communication barriers: Discussing wealth and inheritance can be uncomfortable. Families must foster open communication to ensure everyone understands and agrees with the plan.
  • Complex family dynamics: Blended families, differing financial acumen, and conflicting interests can complicate planning. It’s essential to address these dynamics thoughtfully and inclusively.
  • Changing laws and regulations: Tax laws and estate regulations can change, impacting the effectiveness of wealth transfer strategies. Regular reviews and updates of the plan are necessary.
  • Market risks: Economic downturns and market volatility can affect investment returns. Diversification and risk management are key to mitigating these risks.
  • Preserving family values: Ensuring that younger generations understand and uphold these values requires ongoing education and involvement.
  • Planning for longevity: With increasing life expectancies, planning for long-term care and ensuring sufficient resources for the older generation without depleting the inheritance for the younger generation is another critical challenge.

Bottom Line

Intergenerational wealth planning is a multifaceted process that requires careful consideration of various financial, legal and personal factors. While the goal of intergenerational wealth planning is the preservation and transfer of family wealth, upholding family values and leaving a lasting legacy are also paramount.

Wealth Planning Tips

  • Transferring wealth in a tax-efficient manner is a key component of intergenerational wealth planning. The IRS allows individuals to give up to $18,000 to as many people as they want in 2024 without triggering the gift tax. This is known as the annual gift tax exclusion. When a person gives more than the annual exclusion, the excess gift counts against their lifetime gift tax exemption, which stands at $13.61 million in 2024.
  • A financial advisor’s estate planning expertise can be a valuable resource as you engage in intergenerational wealth planning. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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