By Christine Graham, UMB Bank executive vice president, director of trust administration and chief fiduciary officer
Women are increasingly taking charge of their finances and wealth management. A large part of the assets requiring management can come in the form of a gift or inheritance, also referred to as a wealth transfer. The wealth transfer process presents various planning options based on the individual’s goals and personal situation.
Women are becoming more involved with wealth transfers and will take on more responsibility for managing their personal wealth in the near future. This means women will also play a larger role in passing down money and assets to the next generation than ever before. According to Boston College’s Center on Wealth and Philanthropy, it’s estimated women will inherit 70% of the Great Wealth Transfer, which is the transfer of wealth from baby boomers to their children, over the next two decades. This transfer means women could possess and control two-thirds of the nation’s wealth by 2030.
How wealth transfers usually work
Wealth transfers usually come in the form of an inheritance from a family member or friend who has passed away and bequeathed money or other property to them. It can be an outright gift where you receive the assets and can do whatever you’d like with them. Or, it can be more restrictive, such as a trust, where you don’t have full control over the assets until a certain time. A wealth transfer can also be in the form of a lifetime gift where, in some cases, parents or grandparents are trying to shift wealth to younger generations by making gifts during their lifetime.
If you find yourself on the receiving end of a wealth transfer, there are some considerations you should consider. These considerations mostly depend on the size of the transfer, what type of transfer it is, and what types of assets are involved. If you find yourself in this situation, it’s important to have an understanding of: (a) your different planning options, (b) the potential tax considerations, and (c) what you have received and your responsibilities with regard to those gifts. If the wealth transfer is substantial, some new considerations may come to the forefront that weren’t relevant in the past, such as personal security concerns.
Assemble a good team
When you find yourself the recipient of a wealth transfer or inheritance, your first step should be to assemble a team of advisors who can help you manage these new assets and increased wealth.
It’s imperative to find someone you connect with, and you feel comfortable talking to about your personal information. Your advisor can’t give good advice if you don’t share relevant details that are needed to develop a plan. A trusted relationship is key. Look for an advisor who asks you lots of questions about your goals and objectives, so they can really help you develop a plan designed to achieve those goals.
It is also recommended you engage an advisor that is a fiduciary. Being a fiduciary means your advisor is required to have your best interests and goals in mind instead of being focused on their commissions and products they need to sell.
A wealth transfer can open up planning options you may have never considered or even been aware of. In some cases, it will be difficult to find one advisor who can cover everything you need. You may have to find multiple professionals within different areas of expertise and form a team to help you manage your wealth. For example, you may need an investment manager if you receive stocks and bonds, someone with a real estate background if you receive property or mineral interests, or a corporate attorney if you inherit an interest in a business entity.
Continue to review and update your plan
The key thing to keep in mind is your wealth management plan is never finished. You should constantly review your plan, and look to life events such as marriage, divorce, new jobs, or other life changes as trigger events that cause you to re-examine it closely. You should also keep your goals at the forefront when reviewing your plan, particularly as they may have shifted over time, to ensure the plan and goals are still aligned. Consider your plan to be a living document that continues to change and evolve just as you do.
Once you have your plan in place, one step that is often overlooked is communicating your plan, goals, and rationale to your family and those who may be intended beneficiaries of the plan you’ve developed. It can be important to explain the “why” behind your plan so family members have a clear understanding of your goals and intentions. If this step is missed, it can result in hurt feelings and misunderstandings after you are gone. Communication can be critical to the success of your overall plan.
How do you make a wealth transfer of your own
If you are interested in making a wealth transfer to someone else, you’ll want to work with the same group of advisors you assembled to help you develop your wealth management strategy, such as tax advisors, estate planners, and investment advisors. This team will help you put the pieces together by helping you evaluate the timing and structure of the proposed wealth transfer. Decisions about whether it should be a lifetime transfer or a transfer upon death, or an outright gift or a transfer in trust, are just some of the decisions you will need to make. They will also help you evaluate how the transfer will impact you, from both a tax liability and cash-flow perspective, and work through any issues that arise.
Keep your goals top of mind throughout this process and decide what you want your legacy to be. Do you want to support a non-profit or charity, or is it more important to pass your wealth to family? Your team can help you sort out the impact of your plan and make sure it achieves your goals. They can also help explain the plan and your goals to the people it will benefit.
Ultimately, it’s important to remember every circumstance is different and every plan is unique. It takes communication, collaboration, being goal-oriented, and everyone working together to achieve the best possible outcome.