Identify Core Capital

Core capital is the amount of money that the senior generation needs to live comfortably until death. Everything beyond core capital is deemed excess capital.

Core capital should be handled conservatively. The first priority is ensuring the senior generation enjoys the wealth that they’ve created over their life.

Size, Segment, and Allocate Excess Capital

But what to do with the excess capital? It needs to be given a job.

Some excess capital might be allocated for the senior generation’s children (G1) or grandchildren (G2). Some might get set aside for charitable contributions. Some might be put to work next year, next decade, or next century.

These allocations are vitally important in determining the proper transfer strategies and investment strategies.

Optimize Wealth Transfer

Wealth transfer is a delicate balance of pace and time. If the transfer is too quick, it could incur a large tax bill on the front end. Too slow and it might incur significant taxes upon the senior generation’s death. Not to mention, the senior generation might want to see their dollars transferred and utilized while they’re still living.

Financial planning and wealth planning are key to creating an optimal wealth transfer schedule.

Use Gifts and Trusts

Once the excess capital is identified, allocated, and scheduled, it’s time to determine the proper gifts and trusts to manage the transfer. This step is as much art as science since there are hundreds of combinations of gifts and trusts that can be used, each with its own pros and cons.

The proper use of gifts and trusts can save millions of dollars over the course of a multi-generational wealth transfer.

Consider Mortality

They say the only two certainties in life are death and taxes. But how will a generational wealth transfer plan change if the senior generation or a future generation dies earlier than expected?

Proper generational wealth planning should prepare for these unfortunate possibilities.

How Many Generations?

The highest net worth individuals might want to plan for grandchildren, great-grandchildren, and beyond, so they can succeed where the Vanderbilts failed.

Or perhaps the first generation simply wants to put their own wealth transfer plans in writing to their children and grandchildren.

Implement, Monitor, Adjust

A financial plan is not static. It’s a living document. As such, wealth transfer plans should be regularly monitored far beyond implementation. Families change, markets change, and life throws unexpected curveballs. Regular adjustments are required to properly manage generational wealth.

Communicate and Educate

The final step in wealth planning is communicating with and educating future generations to be good stewards of the family’s assets. Ideally, this process should start while the senior generation is still alive and able to discuss their hopes and goals with the younger generations.

Generational wealth is a tremendous asset. It should be treated with care, intelligence, and thoughtful planning to ensure it can be utilized to its full potential. If you’re looking for better ways to make sure your wealth helps the people you care for most, talk with us.

Registration with the SEC should not be construed as an endorsement or an indicator of investment skill, acumen, or experience. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. Nothing in this communication is intended to be or should be construed as individualized investment advice. All content is of a general nature and solely for educational, informational, and illustrative purposes.

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