Advisors are already witnessing the largest wealth transfer in our history, as the greatest generation fades away and baby boomers began passing their accumulated wealth on to Generations X, Y and millennials. A 2019 Cerulli report estimated that over the next couple of decades some $68.4 trillion will be distributed to younger generations.

There are a couple of things that advisors need to consider in the face of this massive shift. The first is that if you haven’t already developed a relationship with your clients’ adult children, it’s not too late to start. If they don’t already know and trust you, the fact that you advised their parents and managed their investments is likely to be irrelevant when it comes to their own money. Family wealth and death are often deeply interconnected, and many people are uncomfortable discussing either. As a result, adult children often don’t have a clear understanding of their parents’ wealth, nor do they know any of the professionals who have been helping them manage that wealth.

With our own clients we found that facilitating an honest and open conversation between the generations about money and wealth can help resolve some underlying issues and avoid misunderstandings and hurt feelings. It’s an opportunity for parents to express the values that are most important to them, what charities they’ve been supporting and what kind of legacy they’d like to leave. It’s also an opportunity for the next generation to talk about their attitudes toward money and how they think about investments.

We’ve seen among our second-generation clients a lot more interest in ESG concerns and impact investing than we do among their parents. Millennials and Gen-Xers are more likely to look at clean energy projects than shares in Exxon/Mobil. For example, a study by Morgan Stanley’s Institute for Sustainable Investing found that millennials are twice as likely as the overall investor population to invest in companies targeting social or environmental goals and that 75% believe their investments can influence climate change.

These types of conversations can benefit both generations because the children get to hear directly from their parents rather than decipher their intentions after they’re gone. We like to be part of these discussions because it adds value to our existing relationships and leaves the client feeling better about their money and what will happen in the future. It also helps us to get to know our clients’ heirs and gives us the opportunity to showcase the holistic service we offer.

After the family discussion, some clients will then ask us to help incorporate trusts for their assets into their financial plans. In most cases we discuss a testamentary trust that upon the second of the parents’ passing becomes an irrevocable trust for the beneficiaries, usually their children or grandchildren.

Often this is done for the benefit of young adults who might not have the wherewithal or sophistication to properly steward a multi-million dollar inheritance at a relatively young age. Each family situation is different but there are common restrictions, such as preventing the beneficiary from accessing the principal until they reach a certain age or only granting them the annual income the trust earns for a certain period. Those intentions need to be spelled out in the trust documents and clearly communicated to both the trustee and the beneficiaries. The trust rules might also specify how the trust’s assets are invested, which is another reason why it’s important to include investment philosophy in the family discussion.  

Although cynics might see such a trust as a way of exerting control from beyond the grave, in our experience it is usually done with the best of intentions designed to put a layer of protection in place for the beneficiaries who may need a few years to mature. Having the assets in a trust provides protection from bad business decisions, from creditors and even from bad marriages. The idea behind this type of trust is to ensure that the money will be there for a sustainable period of time.

Another aspect of the intergenerational wealth transfer that should be part of the discussion is philanthropy. Many of our clients have charitable entities that they care about and contribute to regularly that should be included in their wills, so their children are aware. It might be a direct bequest at the time of death, or it might be money in a donor advised fund with instructions to the heirs on when and how to distribute it. This is an important part of any estate planning discussion because strategic philanthropic gifting can help reduce estate taxes with the end result being that more of the wealth ends up in the hands of the intended heirs rather than going to the taxman. We often suggest that clients reduce estate taxes by leaving higher-taxed assets, like retirement accounts, to charity. For example, now that all the money in an IRA inherited by a non-spouse must be withdrawn after 10 years rather than stretching for a lifetime, that may no longer be a smart asset for a client to leave to a child or grandchild.

We find that we’ve been having a lot of conversations around charitable giving at the end of life. We talk about that with the family, so they understand what your intentions are with what you’ve done. It’s important to have these discussions so your family knows what you want before it’s too late to ask.

Jason D. Field, CFP, is a financial advisor with Van Leeuwen & Co. in Princeton, N.J.