This Intergenerational Wealth Mistake Can Cost Families $2M in the Long Run
The numbers are scary when it comes to the loss of wealth between generations. According to a 20-year study from the Williams Group cited in AdvisorHub, 70% of wealthy families lose their wealth by the second generation and 90% by the third.
“The biggest culprit isn't bad investing,” said Andrew Lokenauth, founder of the blog Fluent in Finance. “It's silence. Families avoid talking about money, so heirs inherit assets with zero financial literacy and no idea how any of it actually works.”
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Read on to see why Lokenauth and other money experts suggested that the intergenerational wealth mistake of silence can cost families more than $2 million in the long run.
The Lack of Communication
According to Lokenauth, he’s sat in rooms where parents spent decades building something significant and never once explained their strategy to their kids. He added that's the mistake that costs families millions, not a bad stock pick.
“My advice is to start money conversations early, even if they're uncomfortable,” he added. “Hold a family meeting, walk through the basics of your estate plan and make sure whoever inherits understands what you built and why. Wealth without wisdom rarely survives one generation, let alone three.”
Marguerita Cheng, certified financial planner (CFP) and CEO of Blue Ocean Global Wealth, pointed to another reason for silence.
“Sometimes grandparents and parents alike don’t want to discuss money with their heirs because they fear subsequent generations will not want to work hard,” she said. “They fear that their beneficiaries will not understand the sacrifices everyone endured to create wealth. 60% of generational wealth loss is caused not just by lack of planning, but instead by lack of communication and/or trust within the family.”
Another Crucial Mistake
According to Chad Cummings, attorney and certified public accountant (CPA) at Cummings & Cummings Law, one of the recurring “oopsies” he sees often because of inaccurate or incomplete advice from artificial intelligence and other planners is the act of deeding a house to children or transferring other assets while parents are still alive.
“It's a major and very common mistake,” he added. “That's because there is no step-up in basis, which virtually guarantees the beneficiary, usually the kids, will end up paying taxes that are 100% avoidable. That affects everyone, regardless of how wealthy they are.”
Tips for Wealth Transfer
Lastly, Cheng offered these 10 tips for families and individuals looking at wealth transfer.
Consider financial wealth part of a larger picture
Establish a mentoring system
Adopt family governance
Plan for conflict resolution
Evaluate individual risk
Take the time to get organized
Choose your trustees wisely
Establish roles and responsibilities among beneficiaries
Protect assets worth protecting
Expect the unexpected
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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