Preserving Wealth Across Generations: How to Protect Your Estate and Values

Preserving Wealth Across Generations: How to Protect Your Estate and Values

Estate planning is more than just minimizing taxes or avoiding probate, it’s about preserving your legacy. While traditional plans focus on efficient wealth transfer, they often overlook a critical issue: how inheritances can unintentionally lead to wealth dissipation across generations.

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The Hidden Risk: Generational Wealth Loss

Studies show 70% of family wealth is gone by the second generation, and 90% of the third generation lose their wealth according to Investment News. This decline can be attributed to several factors. One being it is often distributed to a number of different beneficiaries. Another factor is that the inherited wealth can come with little structure or guidance to protect the beneficiaries.

As the Great Wealth Transfer unfolds, many families risk seeing their lifetime of financial growth evaporate.

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The Role of Incentive Trusts

To prevent this, many families are turning to incentive trusts, an estate planning tool that motivates beneficiaries to pursue meaningful, productive lives. Rooted in the incentive theory of motivation, these trusts reward responsible behavior and discourage harmful decisions.

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Pros and Cons of Distribution Strategies

1. Outright Distribution

Simple but risky. Beneficiaries receive assets with no restrictions, exposing wealth to misuse, divorce, or creditors.

2. Staggered Distribution

Delays full access (e.g., 1/3 at age 30, 35, 40) but only protects assets before they're distributed.

3. Discretionary Trust

The most protective method. Trustees decide when and how funds are distributed. However, it depends heavily on the trustee’s discretion.

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Creative Ways to Incentivize Beneficiaries

• Academic Milestones: Reward higher education or strong academic performance.
• Life Events: Offer funds for weddings, home purchases, or starting a     business—with guardrails like requiring a business plan.
• Values-Based Goals: Support unique ambitions, like opening a veterinary clinic.
• Income Matching: Encourage employment by matching earned income.
• Charitable Giving: Use Donor Advised Funds (DAFs) to promote philanthropy and     family values.

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Protecting Against Harmful Behavior

• Withholding Provisions: Allow trustees to pause distributions in cases of     addiction, legal issues, or irresponsible spending.
• No-Contest Clauses: Deter disputes by disinheriting beneficiaries who legally     challenge the estate.

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Advisors: Key Players in Estate Planning

Financial advisors are critical in aligning estate plans with clients’ goals. While they typically don't serve as trustees, they help clients choose the right fiduciary and define asset management roles for post-transition. Their involvement ensures continuity and strategic execution.

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Building Your Legacy with the Right Tools

Whether using experienced attorneys, online platforms, or a flexible trust paired with a side letter of intent, there are multiple paths to building an incentive-driven estate plan. Resources like the American College of Trust and Estate Counsel (ACTEC) can connect families with expert guidance.

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Start Planning Today

Your estate plan should reflect more than financial goals; it should carry your values forward. Contact us today to learn how to protect your wealth and preserve your legacy for generations to come.

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