Life Insurance

Transferring Wealth to another Generation

Regardless of income, parents want to make sure they’re able to provide their children with a great life. Passing on wealth to another generation is usually a integral part of this. Fortunately, high-net-worth individuals have more options than most when it comes to wealth transfer planning.

However, it’s up to financial professionals to help their high-net-worth clients understand the various vehicles that can be used for wealth transfer. Some clients may believe that simply passing on cash to sons and daughters is a smart form of estate planning. However, research has shown that with no proper strategy, many inheritance plans flounder.

In articles published by WealthCounsel, Tim Voorhees stated that 60 percent of families lose their wealth by the finish of the second generation. Meanwhile, by the end from the third generation, 90 percent of families are in exactly the same boat. This leads to a 95 percent failure rate for traditional inheritance plans.

Investments like stocks can be also a risky strategy. With economic fluctuations leading to major declines in stock values in recent years, it’s no surprise that many people now view this kind of investment with a wary eye. In fact, a recent Wells Fargo/Gallup survey found that 60 percent of all investors believe wariness regarding the stock market is wise. This wariness was even more pronounced when it came to long-term wealth building, as nearly 30 percent of investors said they consciously avoid stocks in long-term investment accounts.

“The fact that nearly seven out of 10 say they choose stocks for his or her long-term investing is a good strategy for growing assets over time, and yet it’s noteworthy that nearly a third actively decide to avoid stocks for long-term accounts,” said Wells Fargo Director of Retail Retirement Karen Wimbish.

Wimbish said hello was clear that many investors had not forgotten the lessons they learned throughout the recession.

Yet the question remains: What's the best strategy for parents seeking to spread wealth for their family members?

Opting for stability

One valuable estate planning tool financial professionals can provide their clients comes in the form of life insurance.

Unlike other investments, life insurance can give individuals a solid asset they can count on for wealth transfer, no matter how the market is performing. Since the death benefit paid to beneficiaries is according to a combination of estimates and mortality predictions derived from actuarial tables, a life insurance policy’s proceeds are mostly insulated from market fluctuations.

In addition to providing greater certainty about the worth of assets being passed onto heirs, life insurance policies can also help high-net-worth individuals avoid passing on steep taxes to children. Life insurance death benefits aren't subject to income tax, and policies could be structured outside of the estate to ensure that life insurance proceeds are not subject to estate taxes.

Meanwhile, so far as making sure that the wealth lasts, life insurance benefits could be structured in a trust. Financial professionals might help their clients structure a trust so money is passed onto the best people at a particular some time and amount. In this way, individuals can ensure their estate planning wishes are carried out to the letter while avoiding disputes and power struggles among members of the family.

As with any financial endeavor, proper planning is essential for a wealth transfer. When it comes to something as essential as passing on assets to children, there’s without doubt parents will wish to ensure they've a comprehensive strategy in position. It’s the duty of financial planners to assist them explore their options and ensure the mechanisms serve their needs. For many high-net-worth individuals, life insurance can be the ideal solution.

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