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Planning for Generational Wealth Transfer
June 21, 2023
Chad Clauser, CFA®, Partner and Portfolio Manager
Tom Sudyka, CFA®, Partner and Portfolio Manager
Adam Yale, Partner and Portfolio Manager
Bruce Van Kooten, CFA®, Partner and Portfolio Manager
You may have heard the term “the great wealth transfer” in the news lately. In the coming years, trillions of assets are expected to shift from the baby boomer generation to their children. However, it is important for all of us, not just baby boomers, to consider the transfer of generational wealth. How to transfer your assets, financial resources and other forms of wealth to the next generation is an important decision.

In this three-part series we will guide families and individuals near or at retirement through the process of generational wealth transfer, navigate the family dynamics involved, and finally, explore how philanthropy can play a role.

Key Takeaways:

  • Generational wealth transfer refers to the deliberate and strategic transfer of assets, financial resources, and other forms of wealth to the next generation.
  • Determine the best estate planning tool for your situation, whether it be a will or trust. You may also consider advanced strategies to minimize taxes and safeguard assets based on your situation.
  • Select a reliable partner to help you navigate the estate planning process, and regularly review and update your plan as needed.

Why is Generational Wealth Planning Important?

Generational wealth planning is the process of creating and managing wealth that you pass down to future generations—to your children, grandchildren, and future generations. But why is this planning is important for you and your family? Here are five reasons:

PRESERVE YOUR FAMILY’S LEGACY. Through generational wealth planning, you can transfer to your children and grandchildren the wealth you have created.

PROVIDE FOR FUTURE GENERATIONS. Generational planning allows you to provide financial security for future generations of your family, and to help them achieve their goals.

REDUCE TAXES. Proper generational wealth planning can help minimize the tax burden your heirs will face when they inherit your assets.

AVOID FAMILY DISPUTES. By planning ahead, you can help avoid potential fights over the distribution of your wealth.

SUPPORT CAUSES YOU CARE ABOUT. Generational wealth planning can also help you support organizations and that you care about.

Generational planning allows you to provide financial security for future generations of your family, and to help them achieve their goals.

Download our Comprehensive Guide to Generational Wealth Transfer today and be prepared to successfully convey your wealth to the next generation.

Create a Plan

Effective wealth transfer requires careful planning and communication to ensure a smooth transition and early planning is essential in mitigating risk. How do you begin your estate planning?

First determine your needs and priorities. Are you seeking capital preservation, tax or loss mitigation, growth maximization, or do you have other plans?

Second, are there specific individuals, charities, or other areas that are important to you? These people or institutions will be your beneficiaries, and it’s also important to name contingent beneficiaries as well–those second in line to receive your assets. For example, your spouse may be the primary beneficiary while contingent beneficiaries may be children or philanthropic organizations.

Effective generational wealth transfer requires careful planning and communication to ensure a smooth transition and early planning is essential in mitigating risk.

Establish a Will

A will is one of the most critical estate planning tools. It is a document that outlines your desires regarding the distribution of assets and property after your passing. With a will, you can name an executor to manage your estate, appoint guardians for children, and specify who will receive certain assets and property.

A will gives you numerous benefits, including establishing your priorities, preventing family disputes, and including an advanced medical directive. However, wills also have drawbacks. For instance, they become part of the public record after death, compromising your privacy. Unclear wording could lead to probate, resulting in your wishes not being carried out as planned. There are several different types of wills to choose from.

SIMPLE WILL. A simple will, for example, is the most basic type and outlines who will receive your assets and property after your death.

TESTAMENTARY WILL. A testamentary will establishes one or more trusts after your death.

JOINT WILL. A joint will is created by two or more people, and the wills are combined to create a single merged document.

LIVING WILL. Finally, a living will, also known as an advanced healthcare directive, enables you to express your medical care wishes. Living wills become invalid immediately after your passing.

Regardless of the type you select, a will may provide peace of mind and ensure that your wishes are carried out.

With a will, you can name an executor to manage your estate, appoint guardians for children, and specify who will receive certain assets and property.

Set Up a Trust

You may want to consider using a trust as a tool in the estate planning process. A trust creates a fiduciary relationship that allows a third party, the trustee, to hold assets or property for the benefit of another.

Trusts offer numerous benefits including avoiding probate, maintaining privacy, minimizing state or federal taxes, and providing flexibility to adapt to the changing needs of beneficiaries. Furthermore, trusts establish clear guidelines for asset distribution and usage. However, creating a trust can be complicated and difficult to understand. Modifying it can have unfavorable tax implications. In some cases, certain trusts cannot be changed, even at the request of the creator, making them irrevocable.

If you believe a trust is the right tool for your estate planning needs, it is important to understand the different types available.

LIVING TRUST. A living trust is a legal arrangement that outlines explicit instructions for asset distribution after your death. Living trusts come in two forms: revocable and irrevocable.

REVOCABLE TRUST. A revocable trust can be changed by the grantor at any time that he/she is alive, assuming the person is competent.

IRREVOCABLE TRUST. An irrevocable trust usually cannot be changed without a court order or the approval of all of the beneficiaries.

How do you decide between a will and a trust? Both tools allow you to say who will receive your assets. The main differences between the two are how and when they take effect. A will goes into effect upon death while a trust goes into effect immediately upon signing. Wills likely need to go through probate while a trust can minimize or avoid probate entirely. Deciding on a will or a trust is a discussion you may want to have with a professional who can review your individual circumstances.

A trust creates a fiduciary relationship that allows a third party, the trustee, to hold assets or property for the benefit of another.

Advanced Strategies for Minimizing Taxes and Protecting Assets

In addition to wills and trusts, estate planning offers a range of other options to explore.

GIFT TAX EXCLUSION. For instance, the federal government’s gift tax exclusion for 2023 enables you to give away an amount up to $17,000 per person to an unlimited number of individuals–without impacting your gift and estate tax exemption.

FAMILY LIMITED PARTNERSHIP. A family limited partnership is a holding company owned by two or more family members created to retain assets. It is a powerful estate planning tool that allows for the smooth and tax-efficient transfer of business ownership from one generation to the next.

GRANTOR RETAINED ANNUITY TRUST. In certain cases, a grantor retained annuity trust can be set up so that families and individuals can move assets to their heirs while using little to none of their federal gift and estate tax exclusion. With this type of trust, the grantor gives up control of the assets during the term of the trust and receives regular annuity payments and the appreciation on the trust assets move to the heirs free of gift or estate tax.

QUALIFIED PERSONAL RESIDENCE. A qualified personal residence trust requires you to transfer the ownership of your home or homes into the trust. Because you are not the owner of the home when you pass away, the value of the home is not included in your estate, removing it from being subject to estate taxes.

Proper estate planning offers many advanced strategies to minimize your taxes and protect your assets.

Choose Your Partner and Monitor Your Plan

When it comes to creating your estate plan, you have a range of options to consider. You could opt to work independently, hire individual experts and oversee them, or seek guidance from a wealth manager who has a team of experts at their disposal.

In Omaha, there are many choices available. However, it is crucial to make certain that your objectives are aligned with your advisor, the fees are reasonable, and there is a plan in place should your advisor leave the firm.

Additionally, it is essential to stay in touch with your team of professionals on a regular basis to ensure your beneficiaries and assets are up to date, and to inform them of any significant life changes.

It is crucial to ensure that your objectives are aligned with your advisor, the fees are reasonable, and there is a plan in place should your advisor leave the firm.

Final Thoughts

At Lawson Kroeker, we spend a significant amount of time thinking about our clients’ future goals, their financial plans and our role in helping them get to where they want to be. We know our clients have many retirement planning and wealth transfer options available. We also understand sometimes life happens and that you need your resources at hand in case of an emergency.

It is important to take all of these considerations into account when thinking about how to transfer wealth to adult children, a philanthropic organization, other causes or institutions. We strive to custom construct wealth planning platforms for you to achieve your goals.

About Lawson Kroeker

Lawson Kroeker Investment Management, founded in Omaha, Nebraska, is a third-generation wealth management firm that helps a select group of high-net-worth clients achieve their life goals by providing investment advice and building custom solutions. Lawson Kroeker’s disciplined, patient investment management process focuses on owning the stocks and /or bonds of a focused group of individual businesses. Established in 1986, the firm has under management approximately $600 million in assets.

Chad Clauser, CFA®, Partner and Portfolio Manager—Mr. Clauser began his investment career as a senior analyst at an Omaha-based investment advisor Tributary Capital Management, and later as vice president of the New York investment bank Credit Suisse. He earned the Chartered Financial Analyst (CFA®) designation in 2009 and is a member of the CFA® Society of Nebraska. Chad attended the University of Nebraska in Lincoln, where he received a bachelor’s in Finance and completed minors in both computer science and mathematics.

Tom Sudyka, Jr. CFA®, Partner and Portfolio Manager—Mr. Sudyka began his career as a portfolio manager with several large Midwest-based investment management companies. He served as a managing director and founding partner of BPI Global Asset Management before joining Lawson Kroeker in 1999. His investment decisions are guided by his 30+ years of investment management experience. He has an M.B.A. in Finance from the University of Nebraska and a B.A. in Finance from Creighton University.

Adam Yale, Partner and Portfolio Manager—Mr. Yale started his investment career in 1997 with First Manhattan Co., an investment advisory firm in New York, NY as an analyst of publicly-traded real estate securities and direct real estate investments. From 2006 until the 2022 merger with Lawson Kroeker, Adam was the sole Principal at Red Cedar Capital, LLC, a Registered Investment Advisory firm he founded that employed a fundamentals-based investing strategy. He earned a B.A from the University of Michigan and a Master’s in Accountancy from the University of Denver.

Bruce Van Kooten, CFA®, Partner and Portfolio Manager—Mr. Van Kooten has been a Lawson Kroeker Partner and Portfolio Manager since 2006 and has more than 45 years of institutional and private investment management experience. Bruce has worked as a trust investment officer with First National Bank of Omaha and as a senior investment portfolio manager in Denver at KPM Investment Management, which became Wells Fargo Private Asset Management. Bruce earned the Chartered Financial Analyst (CFA®) designation in 1987 and is a member of the CFA® Society of Nebraska. He has a Bachelor of Science degree in Business and Economics from Iowa State University.

Download our Comprehensive Guide to Generational Wealth Transfer today and be prepared to successfully convey your wealth to the next generation.