Pass It On: The Dos and Don’ts of a Wealth Transfer Strategy

Over the next two decades, trillions of dollars are set to be passed down from baby boomers to younger generations and various charities. Dubbed the “Great Wealth Transfer,” this process will be the greatest intergenerational wealth transfer in history.

In a perfect world, everything would be handed over without a hitch. Unfortunately, because there are often so many layers to bequeathing one’s belongings, family assets can get lost from one generation to the next. That’s why careful planning and meaningful communication are crucial to ensuring wealth changes hands as intended.  Not to be confused with estate planning or legacy planning—also key components in preparing families and finances for the future—wealth transfer emphasizes people over paperwork.

“As with most things in life, a little effort and two-way communication during wealth transfer planning can go a long way in avoiding problems before they happen,” said Josh Lusby, LPL Wealth Advisor for SELCO Investment & Retirement Services.* “It is imperative that benefactors and their heirs maintain an open and transparent dialogue to avoid potential issues in the wealth transfer process.”

And it’s never too early to get started. Conversations and educational opportunities can be spread out over time so heirs can absorb it all, well before assets change hands. To prepare, here are some key strategies to consider and mistakes to avoid when planning for wealth transfer.

Benefactors: Make the process approachable for heirs

While legal documents (wills, trusts, beneficiary designations, etc.) dictate who inherits what, a structured wealth transfer plan brings together financial literacy and family engagement to prepare heirs to manage transferred assets responsibly. As a benefactor, here are a few things to keep in mind while planning your wealth transfer:

• Plan periodic family meetings. Non-threatening money conversations can be a great way to break the ice. By laying out your intentions, you can help your heirs develop the skills necessary to manage what they stand to inherit. Balancing family dynamics and expectations may pose a challenge, but you can manage them by agreeing to formal yet comfortable protocols for discussing financial matters. These meetings are also a great place to share your own experiences.
• Encourage financial literacy: Before the transfer takes place, you’ll want to ensure beneficiaries understand basic wealth management, trust structures, and the tax implications of their inheritance. This can be accomplished by attending formal literacy courses or workshops together and passing along what you’ve learned over the years.
• Set up staged gifting. Rather than handing everything over in one lump sum, assets can be transferred incrementally, either through annual exclusions or milestone-based distributions via trusts. Spreading these distributions out, and gradually building to larger amounts, can help evaluate your heirs’ financial maturity before giving them full control.

Heirs: How you can get involved 

As an heir, you need to take an active role during the wealth transfer planning process to ensure a smooth transition and avoid being blindsided. Here are a few ways to get involved along the way:

• Get educated and build skills. Learning how to manage finances is crucial for heirs; as noted above, benefactors can lay the foundation for your financial wellness early on. The more the better, too. Possessing foundational investment and tax knowledge will better prepare you to make the most of their inheritances.
• Meet the advisory team. It’s important to establish relationships with the family's financial advisors, CPAs, and estate attorneys before you inherit. Early introductions between next-generation family members and advisory teams ensure operational continuity. “As we get older, I often encourage my clients to invite their beneficiaries to our meetings,” Lusby said. “I want the beneficiaries to be informed on the how and why of our investment strategy. But if something does happen, it also makes the subsequent claim process much easier during an understandably difficult time.”
• Understand key documents. Once you’ve been educated about the ins and outs of important estate planning documents like wills, trusts, and power of attorney, you’ll want to review and fully absorb this information to avoid family conflict and costly tax pitfalls. You’ll then be a responsible steward rather than an unprepared beneficiary.

Steer clear of these missteps 

By following the strategies above, benefactors and their heirs will be well on their way to a successful wealth transfer. The key is to not get complacent. Here are a few examples of mistakes to avoid during the process:

• Keeping everything to themselves. Driving the point home, communication is the cornerstone to initiating a successful plan—and sticking to it. After the initial conversations, keep the lines of communication open; heirs need to understand everything the plan entails. There’s no need for benefactors to share every detail, but talking through important facets—like if the inheritance will be received outright or held in a trust—will be vital.
• Forgetting to include non-financial assets. While finances are often the focus of inheritances, it’s also important for benefactors to be clear about any non-monetary items that will be passed along—and how they’ll be handled. Who will receive collections and personal property with sentimental value (art, antiques, classic cars, etc.) should be taken into consideration.
• Not revisiting the plan. This is where benefactors and their heirs really need to avoid resting on their laurels. Major events like a birth, death, marriage, divorce, or retirement warrant a plan check. Even if none of these occur, it’s a good idea to review the plan together at a minimum of every five years (though annually is even better).

There’s no right or wrong way to transfer wealth. Developing a plan together that aligns with the benefactor’s overall goals will be the best path toward a successful transition.

“The wealth transfer and estate planning process isn’t just about completing the paperwork,” Lusby said. “More importantly, it's about both parties (benefactor and heir) protecting the people that they care about most.”

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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* Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. SELCO Community Credit Union and SELCO Investment & Retirement Services are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using SELCO Investment & Retirement Services, and may also be employees of SELCO Community Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, SELCO Community Credit Union and SELCO Investment & Retirement Services. Securities and insurance offered through LPL or its affiliates are: