Estate Planning

3 Stages of Effective Wealth Transfer

These steps are critical to success

3 Stages of Effective Wealth Transfer

Passing your wealth on to your children should be a crowning moment, a celebration of your legacy and a means of putting your children and grandchildren on sure footing. You’re making a final and meaningful gift to them, passing along an estate that is rich in heritage as well as material assets. The benefit your children and other heirs receive can be life-altering.

Without adequate planning, however, the wealth transfer process can be stressful. The lack of a firm plan can also make it difficult to pass on your wealth in a way that aligns with your family goals and values. In fact, 70 percent of families fail to successfully transfer their wealth to the next generation.1 Lack of communication and trust is a big factor in this high failure rate, as is lack of preparation for younger heirs.

It doesn’t have to be this way. By talking with your children about wealth as they grow and mature, and crafting a smart, careful, long-term plan for wealth transfer, you can help ensure that your estate will benefit your children and grandchildren in more than just a financial sense. Here’s a guide to navigating wealth transfer discussions with your heirs in a thoughtful manner during three important stages of life (and your children’s lives). 

Stage One: Full House

While the family is living together under the same roof, it’s important to teach your children financial savvy and responsibility, as well as to give them a sense of your family’s financial state, including the source of your money and your financial priorities.

“It’s valuable to have conversations about where the family money comes from and how the family has made money,” says Craig Cascio, Registered Representative, SunTrust Investment Services, Inc. and Senior Vice President and Wealth Planning Manager at SunTrust. “I think a lot of people fear that if their children knew a lot about their wealth they would be demotivated, but if there’s open conversation about how that wealth was created, then there is more of a chance that their children will grow up with the values that the parents have.”

These conversations should start when your children are in elementary school and in their preteen years, as you explain the value of earning and saving money and the relative prices of different items. In high school, they should become familiar with topics such as budgeting, credit and managing a checking account, and these skillsets should be reviewed before leaving for college and assuming more financial independence. 

If your family is involved in philanthropic work, Cascio recommends encouraging your children to participate in order to instill values of charity and financial responsibility, as well as to learn about causes important to the family. Similarly, if your family owns a business, this is a good time to expose your children to it.

“Some families will actually create a family mission statement where they’ll work together across generations and talk about what’s important to the family and what the legacy is that they want to share,” Cascio says.

Stage Two: Late Career

As children graduate from college and enter the workforce, there are differing philosophies regarding how much they should be involved in estate planning.* According to one school of thought, it’s best that heirs learn the value of hard work—something that can be difficult when you gain access to substantial resources early in life. On the other hand, it’s difficult to manage a large estate without preparation, and keeping your children in the dark about a sizable estate can lead to shock later.

For example, one of Cascio’s clients offered a $300,000 loan to children who needed to purchase a new home in order to support a growing family. The children nearly refused, concerned that their parents couldn’t afford it—they had no idea the family estate was worth $75 million.

“Should something unexpectedly happen to the parents, these children would not be at all prepared for dealing with that sort of inheritance,” Cascio explains.

While more detailed conversations about your wealth transfer plan should take place with children who are college age or beginning their own careers, spouses need to first ensure that they are on the same page for how assets will be passed down. This is a conversation your SunTrust advisor or estate planning attorney can help facilitate.

“You do not want to be in the room with the children discussing the plan when you haven't hashed out some of the details between spouses,” Cascio says. He recommends crafting an initial will no later than when your first child is born, and then revisiting it every three to five years.

The empty-nest stage of life is the time to flesh out your plan and share it with your children. Whether or not you intend to give them input, early communication (and learning from their reactions) can help you avoid trouble spots down the road. Understanding your children can help you determine how forthright to be, and when. 

“There’s a tremendous amount of psychology, as opposed to law, that plays into this,” says Gerry W. Beyer, a professor at Texas Tech University School of Law who specializes in estate planning. “In the past, the silent approach was more common, and then the pendulum swung and now there’s a lot of talk about full transparency having the better shot of working. The best approach is somewhere in between, and you have to select the right balance based on your own family,” Beyer says. 

This is also an opportune time to increase your children’s involvement in the day-to-day affairs of your estate. That could mean playing a larger role in the family business or having more philanthropic influence through a family foundation or donor-advised fund.

Stage Three: Retirement

This is the time to formulate a specific strategy for your estate transfer that treats your children and grandchildren fairly and promotes relational harmony, but also is designed to ensure the long-term health and success of prized assets, such as the family business.

Step one is observation. You should have a good sense by now which children value specific assets, such as a vacation home or the family business, and would like to inherit a share. The next step is family discussion aimed at fostering harmony as well as confirming your observations. Based on that process, you can make a plan. For example, if two children want to be involved with the family business and one doesn’t, Cascio suggests giving equal shares of the company to the two children who care about it, and giving a different asset of comparable value to the third sibling.

“Being fair doesn’t always mean that you have to be equal. Sometimes there are reasons to reward a child who is working in the business with a different asset from a child who is not working in the business,” Cascio says.

“Typically, we’ll recommend that clients look at other assets such as their marketable securities in cash or real estate or possibly life insurance, as a way to balance out the estate, while making sure the active participants in the business inherit the business to avoid family strife,” he adds.

While every family is unique, active planning and careful communication are critical to successful wealth transfer. Speaking with your children about financial matters—beginning with general financial education when they are young and progressing to the specifics of your family’s estate and plans for wealth transfer as they grow older—is key.

This framework will help families not only pass on their wealth and legacy to the next generation but also help ensure that key family values are passed on for generations to come.

How can we help you meet your wealth management needs? Consult with a Private Wealth Management advisor or learn more about SunTrust Private Wealth Management.

1 “70% of Rich Families Lose Their Wealth by the Second Generation,” June 17, 2015, Money.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.