Generational wealth: How to build a legacy

It's being called the great wealth transfer – the amount of generational wealth being passed from the baby boomers, those born between 1946 and 1964, to the millennials, those born between 1981 and 1996. According to a 2022 study conducted by Cerulli Associates, a research firm that provides data for the financial services industry, $84.4 trillion in assets is projected to be transferred to heirs through 2045, while $11.9 trillion will be donated to charities. The study notes more than $53 trillion will be transferred from households in the baby boomer generation, representing 63% of all transfers.

Marc Carter, managing member and senior wealth adviser with KEB Wealth Advisors, said generational wealth is built over time with the intent of each generation protecting it and contributing to its growth. This is different from an inheritance that is intended for the heir to use as they wish, or to pay for a college education or for the payment of debt. Proper legal documentation, such as wills and trusts, is necessary to ensure that the money and assets pass efficiently to the intended heirs. These documents can also provide instructions on how the wealth is to be used.

When speaking of generational wealth, the wealth referred to goes beyond cash, retirement accounts and homes. It includes investments, any variety of assets, real estate, art and businesses. Rik Stone, a certified financial planner and director of operations at Robert Gordon & Associates in Springfield, explains that a stream of income beyond a salary is typically necessary to build wealth. Wealth can be built if you can live on far less than you make; otherwise, it can take about three generations to build generational wealth.

The first generation is the builder of wealth. This would be the silent generation who are the parents of the baby boomers. According to Forbes, "The boomers were in the right place at the right time. Following World War II, this generation experienced immense economic growth and prosperity that afforded them the opportunity to accumulate much wealth in their lifetime. Boomers are currently the wealthiest generation on the planet with a mean net worth between $970,000 to $1.2 million."

The second generation, the baby boomers, is the maintainer of the wealth, controlling and growing the assets. A crucial element of building generational wealth is educating the next generation. Morgan Padget, a certified financial planner with Robert Gordon & Associates, says the sooner parents get kids involved in handling money, the better. They need to learn the value of money and how to build wealth effectively using tax advantages and tax shelters. Carter says tax minimization, especially on the investment side, along with tax-efficient investing, is crucial when it comes to building wealth.

Each generation that is inheriting wealth needs to understand the big picture – how generational wealth was built prior to their generation, and how they are expected to continue building wealth according to family stipulations.

Stone explains that the third generation has grown up with wealth and may tend to take money for granted, which introduces the risk of wealth being spent or mismanaged. He emphasizes what Padget said about educating the next generation on being smart when handling money. Carter adds that this generation needs to understand cash flow and budgeting and how to be disciplined when it comes to spending, saving and investing. Trust between generations is imperative, as well.

Connor Carnduff, a certified financial planner with Broadway Graham Wealth Partners in Springfield, outlines three important aspects to transferring wealth. He suggests teaching children and teens to invest when they're young and involving all family members in generational wealth planning meetings with a financial adviser so that the heirs understand how the wealth was built and how they'll be expected to grow it when they are in charge.

The third element is to protect the assets by making sure they are titled properly, that trusts are implemented and beneficiaries are kept up to date, and that effective tax planning is executed and evaluated on a regular basis. Most importantly, Carduff said, is to understand how your wealth adviser is keeping the accounts and assets organized. He said every family member involved in the management of the family's wealth should be able to look at a dashboard, for example, to understand the activity and use that information to make data-driven decisions.

Everyone's situation is different, but anyone can build wealth if they wish to plan for the generations to come, Carter said.

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