Why Create a MWMS? Because Traditional Estate Planning Has a 90% Failure Rate.
“Shirtsleeves to shirtsleeves in three generations…” This common adage refers to the tragedy that less than 10% of family wealth survives the transition to the third generation.”
Source: The Globe and Mail, January 2017 - Article: Why Wealthy Families Lose Their Fortunes in Three Generations.
The article goes on to state…
“…Among the causes of the phenomenon are taxes, inflation, bad investment decisions, and the natural dilution of assets as they are shared among generations of heirs. Yet among the most compelling causes are younger family members who are ill-prepared or unwilling to shoulder the responsibility of wealth stewardship.”
Creating a Multigenerational Wealth Management System
A Multi-Generational Wealth Management System (MWMS) is a mechanism that can manage, protect and grow a portfolio of income-producing assets for the benefit of an individual, family, and future generations. At the core of the MWMS is an irrevocable Legacy Trust
Also known as a Wealth Trust, this legal instrument/structure can provide:
Asset Protection - The Legacy Trust is a legal third-party that can help create a second, protected estate. This strategy effectively "removes" assets from a personal estate, outside of the reach of creditors and the IRS.
Financial Emancipation - Freedom from the concerns associated with a lack of money for food, shelter, or clothing. This can include health care, automobile transportation, etc.
Access to Resources - Health Care, Legal Representation, Education, etc.
While well-known families including the Kennedys, DuPonts, and Rockefellers have successfully used instruments like irrevocable trusts to preserve wealth for generations, many other less wealthy families have used the same strategies to ensure effective, repeatable wealth transfer.
How It Works…
As a "second" estate, The Legacy Trust affords asset protection. Because it is considered separate and outside of personal assets, The Legacy Trust acts as a wall, protecting assets against divorcing spouses of children, creditors, and judgments against grantors (those placing the assets into the Trust) and beneficiaries. The Legacy Trust can remain in force through the lifetime of the youngest beneficiary, plus 21 years before decanting. Decanting. This often means that your Legacy Trust can provide for your family anywhere for more than 100 years.
Tax Planning
The Legacy Trust is effective in reducing estate taxes. Without one in place, assets transferred from one generation to the next could be taxed each time it transfers hands. With federal tax rates reaching 35%, that means that $10 million will only be worth a small fraction of that by the time it reaches the third generation. And if inheritance taxes come into play, the estate could be reduced even more. This is not the case with a Legacy Trust. Through a Legacy Trust, each and every dollar can pass through to subsequent generations without a penny lost to estate taxes. A Legacy Trust takes full advantage of the Estate Tax and Gift Tax Credits, as well as the annual $13,000 gift exclusion, and preserves wealth for generations that may not even be born yet.
Physical or Mental Ailments and Economic Instability
Unexpected life events can have a disastrous impact on savings and retirement accounts or even college funds. An interruption in earned income due to disability on the micro-level or a global pandemic on the macro-level can have a catastrophic impact on an individual’s standard of living and life goals.