What to know about multigenerational estate planning

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Baby Boomers — those born between 1946 and 1964 — hold about $20 trillion in wealth.1 Over the next few decades, many Boomers may transfer this wealth to their Gen X, millennial, and Gen Z children, perhaps incurring a hefty tax bill. Here are some ways to handle multigenerational estate planning so that the generations after you may keep these assets in the family.

What is generational wealth?

As the name implies, “generational wealth” is the wealth that transfers from generation to generation. Think of “old money” families whose generational wealth allowed members of the younger generations to run for office, start businesses, invest in startups, and create family charities.

How may you build generational wealth?

Building generational wealth may come from various sources such as a job, a career, a business, or passive income like royalties or dividends.

After generating enough income to cover your monthly expenses, you might consider ways to use your extra income to build assets for a potential future source of wealth. Some income sources include:

  • Investing in blue chip or dividend-paying stocks
  • Purchasing rental real estate
  • Creating something that pays royalties, like self-published books or a social media channel
  • Starting a side business

The more sources and forms of income you have available, the more funds you may have to begin building generational wealth, even at a young age.

Multigenerational estate planning: dos and don'ts

There are a few “dos and don’ts” when planning an estate to create and hopefully preserve generational wealth.

Do: Talk to a financial professional.

Navigating the complexities of investing and tax implications might be tricky, and a single misstep may cost you dearly. Having a financial professional review your portfolio and recommend some options may help you save more now to provide more income later.

Don't: Ignore tax considerations.

When it comes to building wealth, it is often not how much you earn but how much you keep. Your financial professional may help you manage tax efficiency for your assets, working toward the goal of preserving and reinvesting more of what you earn. These considerations may mean putting assets in a trust, or investing income in an individual retirement account (IRA).

Do: Diversify your portfolio and assets.

Investing in only a particular asset or sector may leave you vulnerable to market volatility. Suppose you depend on some of these funds to provide you with income in the future. In a downturn, you might sell assets at a loss to stay even. Diversifying your portfolio and managing over-exposure to any particular asset or sector may help avoid major market losses and hopefully help your portfolio maintain its value during periods of high inflation.

Important disclosures

1 Millennials’ wealth more than doubled to over $9 trillion since the pandemic began, but Baby Boomers are still worth almost 8 times as much, Fortune, https://fortune.com/2022/03/22/millennial-wealth-doubles-during-pandemic-9-trillion-boomers

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

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The opinions and views in this blog post are those of the authors, and are not intended to provide specific advice or recommendations for any individual. Please consult professional advisors with regard to your individual situation.


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