It takes years of good decisions to build a financial legacy, but only one misstep to see it all wiped away.
Obviously, this is a worst-case scenario for anyone hoping to pass their wealth through the generations.
The good news is that a financial disaster never has to come to fruition. With strategic planning, even the most complex estates can be impregnable from any type of financial treachery.
Keep reading as we explore some of the best means of safeguarding wealth for future generations.
Most people have probably heard the term “trust fund baby” and assumed that a trust is something reserved for those born with a silver spoon in their mouth. While a trust is undoubtedly a crucial component of building and maintaining wealth, it is most definitely not reserved only for the privileged elite. Trusts can be established by anyone as means of a strategic financial plan.
Some of your clients may not know that there are two main types of trust: revocable and irrevocable. And even those who do may not really understand what they do. Explaining this to them can go a long way, even if you keep it as simple as this:
A revocable trust, also known as a living trust, allows the person creating the trust (grantor) to retain control over the trust’s assets during their lifetime. Its main benefit is avoidance of probate court in the event of the grantor’s untimely death. Despite the convenience of having control over trust assets, a revocable trust does not offer complete insulation from creditors and legal judgments upon death.
A more airtight wealth protection tool is an irrevocable trust. Once a grantor places assets in an irrevocable trust, they lose control over them. A grantor cannot change (revoke) an irrevocable trust once it is established, except under very special circumstances. The benefit lies in the fact that assets placed in an irrevocable trust become a separate legal entity from the grantor. This means that creditors or any other claimants can come after trust assets upon the grantor’s death.
A Lesser-Known Option
Individuals wanting to better balance the lines between the control of a revocable trust and the legal protection of an irrevocable trust may want to consider a special DAPT trust (domestic asset protection trust). At its core, a DAPT is an irrevocable trust that allows grantors to retain some control or beneficial interest over trust assets during their lifetime.
Some DAPTs can even be combined with an LLC to help protect the interests of family businesses passed through the generations. It is worthwhile to consult a wealth protection attorney to further discuss the legality of DAPTs in your state.
Create a Culture Communication
All too often, matters of inheritance lead to acrimony within the family. A surprise is often at the heart of the troubles:
The family had no idea a distant cousin was written into the will.
Nobody knew that Grandpa had so many shares of Apple stock.
Everybody wants the family mansion, but who knew the property taxes were so high?
The list goes on.
Therefore, it is essential to create a culture of communication when it comes to safeguarding wealth. As an advisor, you can help schedule and participate in regular family meetings to discuss investment strategies, succession plans and asset distribution.
You can also play a role in introducing family governance structures, complete with mission statements and role definition. And of course, you can assist with establishing a long-term financial framework among all members of the family to guarantee ongoing financial stability and to reduce the risk of surprise squabbles upon the death of a family matriarch or patriarch.
Realize the Power of Diversification
“Don’t put all of your eggs in one basket.” It’s one of the world’s oldest — and most useful — axioms.
Just like a diversified portfolio of stocks and bonds is essential for reducing risk in volatile markets, diversified wealth management is also a crucial component of ensuring your client’s financial legacy.
Modern wealth management is about more than just the dollars and cents of your client’s net worth. It is a holistic endeavor, consisting of financial, tax, estate and philanthropic planning. If you’re not providing all these services, or connecting your clients with a team of professionals who can assist with the one’s you don’t, you risk losing them to an advisor who will help them meet all these needs.
This last point may raise some eyebrows, but philanthropy is an increasingly important priority for achieving ongoing legacy goals. Not only can philanthropy help ensure an estate’s generational legacy, but charitable giving can have many beneficial tax implications.
Emphasize the Importance of Professional Guidance
The sad reality is that the more your wealth accumulates, the more vulnerable you are to losing everything. Gold diggers come in all forms, and if bad actors perceive that a couple of extra zeros may be coming their way via fraud or theft, they will stop at nothing to get their slice of the pie.
Remind your clients that consulting with professional advisors is one of the most fundamental wealth preservation tactics. For example, those with real estate holdings — either residential or commercial properties — should regularly use a property inspector to let them know the condition of those holdings. It’s also important to consult an asset protection lawyer to draft wills and trusts to guarantee that all document verbiage is airtight. Clients should also hold scheduled meetings with their insurance agent to sift through the fine print of their policies and make sure their coverage is adequate for their evolving needs.
Develop a Financial Fortress That Lasts Through Generations
With added wealth comes added risks. Consider any of the ideas listed above as part of a strategic wealth management plan and let your clients know that these strategies can ensure that their hard-earned legacy is set in stone for future generations.
John Skabelund, JD, MBA, is managing partner of Skabelund PLLC, an Arizona-based boutique law firm focusing on asset protection. His clients include real estate investors, business owners, executives, and professionals in various fields, including medicine, law, sports, and technology.
