By Eric Tashlein
Your Finances
Eric Tashlein.
Families in the United States are in the midst of history’s largest transfer of wealth from generation to generation, as the affluent baby boomers head into their 60s and 70s. If you are in a position to leave significant assets to your heirs, you need to focus on more than the financial aspects.
It’s a worldwide cliché that family wealth tends to disappear quickly. “Shirtsleeves to shirtsleeves in three generations” is one of many sayings reflecting this unfortunate fact. Research has shown that a major factor is a failure to prepare heirs to inherit. Even many people with estate plans neglect this crucial aspect of the process.
Here’s an example: John and Mary left a lake cabin to their children, among other assets. The children all agree they would like to sell the cabin property, since it costs money to maintain and they no longer visit it. But they hold onto it because they assume their parents wanted them to keep it for sentimental reasons, since the family had enjoyed many vacations there together.
However, John and Mary kept the cabin because they didn’t want to pay the capital gains taxes that would have resulted from a sale. They knew their heirs would benefit financially from selling the property, because inheritance rules allow heirs to “step up” the tax basis to its current fair market value, thus avoiding paying taxes on the appreciation that took place during their parents’ lifetime.
John and Mary should have explained their reasoning to the children, who would have then been able to sell the property guilt-free. The story illustrates the basis of effective wealth transfer: communication. If you have, or are likely to have, significant assets to leave to heirs, part of your estate planning process should include the following steps:
Education. Make sure your heirs understand how you built your wealth, your values and your hopes for their future. Discuss your vision for the management of specific assets, such as property.
Dialogue. Hold open discussions with all family members involved and allow the younger generation to express their thoughts about family assets, including property. You can do this on your own or enlist the help of your financial planner to hold family meetings.
Agreement. Draw up a written family mission statement, with all family members contributing ideas and agreeing on goals and actions for the future.
Plan. Incorporate the family document into your estate plan.
In the end, your heirs will make their own decisions. But you will know that you did everything you could to pass on your values and goals along with your wealth.
Eric Tashlein is a Certified Financial Planner professional and founding Principal of Connecticut Capital Management Group, LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at 203-877-1520 or through connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor. Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., A Registered Investment Advisor. Cambridge Investment Research Inc., and Connecticut Capital Management Group, LLC are not affiliated.