It's no secret that people in the United States today are living longer and accumulating more wealth than ever before. In fact, the last decade produced more wealth than any previous period in modern history.
The 2006 Capgemini World Wealth Report indicates that overall wealth of "high net worth individuals" grew at an unprecedented annual rate of 8 percent between 1996 and 2005, accounting for $33.3 trillion in 2005. A majority of this wealth is held by baby boomers, and promises to create a windfall of generational wealth transfer estimated at $41 trillion by 2053.
If you are poised to participate in the wealth transfer, you will likely ask yourself questions about your legacy such as: How will I be remembered? What impact have I had on my family and society? How will my children share and perpetuate the values that are important to me?
Cutting edge financial plans are now being engineered to answer these questions and address legacy issues -- extending 100 years into the future -- in addition to current and short-term objectives. This is vastly different than the traditional model of planning.
Previously, financial planners tailored the risk of client portfolios according to age. For a younger client, it was common to see a child's college savings plans invested more aggressively, while the portfolio of a retired grandparent would favor secure fixed income securities. It was rational to believe the longer the time horizon the higher likelihood of sustaining short-term volatility common with growth investments. While this may still be appropriate for individual situations, many planners are realizing that the time horizon for a retired couple's legacy might be 100 years or more.
Today, people are retiring at a younger age -- it is common to see retirees in their 50s. Absent health issues, many financial planners are asked to structure a plan that fuels retirement for the next 50 years. For example, a legacy financial plan may call for a higher allocation to equities and alternative investments and less in fixed income. If a couple is actively giving money through philanthropy and has children or grandchildren, it makes sense to structure areas of their portfolio to meet objectives 100 years from today. In essence, high net worth individuals are creating a legacy that spans many generations.
Creating financial plans that span a century is a relatively new practice. It is important to understand the process involved in defining wealth management objectives to achieve 50 to 100 years from today. If you are considering a plan for multigenerational wealth transfer, start by asking yourself these questions:
¥ What is your plan for your family and your legacy?
¥ Do you have a family mission statement outlining the values that you would
like to see span generations?
¥ What strategies can I implement to help keep my children and grandchildren
motivated and productive?
¥ Is there a benefit of transferring wealth to my children and grandchildren
while I am alive?
¥ Are my trust documents written to address the values that I want instilled
in my legacy?
Answers to these questions will help you have a meaningful discussion with
your wealth manager and ensure the legacy you envision today is achieved
generations into the future.
Callan is CEO of Callan Capital, a fully integrated boutique wealth management firm based in La Jolla.
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