Inheritance: How to Pass on Wealth with Minimal Friction

One of the most significant gifts parents can give their children is the wealth and assets they accumulated throughout their lives. Yet divvying up that wealth is also a common cause of family conflict, and can drive irreparable wedges between children, parents and relatives.

The ideal outcome is that heirs will benefit from a meaningful inheritance, preserving family wealth and legacy for generations. Unfortunately, managing large estates can be complex and numerous factors can complicate and even prevent the collective end goal.

One such factor involves fundamental decisions around the distribution of wealth, such as whether to pass an inheritance through a gift, a trust or both. Timing is another issue. Distributions to beneficiaries often happen after the first generation passes, but as life expectancy continues to increase, parents may want their children to benefit from inheritances earlier in life. Then there are issues of how much to distribute to each heir: should the split be even and is that even possible, given the asset type?

While every situation is different, crucial considerations, best practices and frequent communication can help families lessen tension and create a distribution plan that meets the benefactor’s goals while minimizing drama.

Equal doesn’t always mean fair

Splitting assets equally among children might seem the clear-cut route to wealth distribution. An estate divided equally can prevent conflict over perceived and real fairness and favoritism. But some assets don’t allow for equal distribution and benefactors may need to make targeted decisions that optimize intangible outcomes among beneficiaries.

For example, a family might bequeath a boat to one child with a passion for sailing and an education fund to another child with a growing family.

These scenarios are effectively limitless, and differ extensively from family to family. One heir might have been a caregiver to their parent(s), while a child with exceptional needs may require additional provisions. One child might be a big wage-earner, while the other may need substantial support over the years. One beneficiary might have a particular passion for a cherished asset like an art collection, but assets like vacation homes or hotels may need additional funding and resources to operate.

In fact, even when parents intend to split assets equally, they may unintentionally leave heirs with inheritances of assorted sizes. For example, a house might fluctuate in value or require substantial maintenance, and an equity portfolio could appreciate or depreciate sharply. A trusted advisor can help you stay aware of the unintended consequences and outcomes and develop an optimal plan to mitigate them based on your unique circumstances.

Five key tips for a seamless transfer

Research indicates a breakdown of trust and communication is the most prominent factor undermining successful estate transfers. Failing to prepare heirs follows closely behind. That’s why estate-planning experts focus on communication and suggest talking early and often.

At Goldman Sachs Private Wealth Management, advisors use a clear framework for how benefactors can approach and proceed with distributing wealth.

Share plans with your heirs

Your advisor can help you establish the logic and priorities behind your wealth distribution plan. Share this with family members to help them understand the why and how behind your intent.

Hold family meetings

Meetings can cement a family’s mission, vision, goals and philanthropy. Meetings can vary in duration and frequency and include guest speakers like legal and accounting advisors or someone to discuss trusts and the family business.

Don’t go it alone

Your advisor can facilitate a meeting and/or recommend third parties who can make a positive difference.

Clearly explain the distribution process

It’s important that all involved understand the wealth distribution process and who is needed to carry it out. This can include explaining powers of attorney, probate, types of trusts and executors, and clarifying if a main asset is a business or partnership agreement.

Create a letter of wishes

While a letter of wishes is not legally binding and should not be used for items of significant value, it is a good tool for explaining your reasoning in plain language and passing confidential instructions and information to trustees.

Communication, communication, communication

Dividing estates and distributing wealth is complex, but as the previous steps outlined, frequent communication is key for successfully transferring wealth. And starting those discussions early, well before the death of a family member, ensures everyone has time to plan successfully and address changing situations.

The entire process can be eased by working with an advisor at Goldman Sachs Private Wealth Management to establish this communication and help all parties reach a mutual understanding and acceptance of goals, legacies, wishes, rationale and the asset distribution process.

General Disclosure

This material is intended for educational purposes only and is provided solely on the basis that it will not constitute investment advice and will not form a primary basis for any personal or plan investment decisions. Goldman Sachs does not provide legal, tax or accounting advice and strongly recommends clients obtain their own independent advice based on their particular circumstances. While it is based on information believed to be reliable, no warranty is given as to its accuracy or completeness and it should not be relied upon as such. Information and opinions provided herein are as of the date of this material only and are subject to change without notice. Goldman Sachs is not a fiduciary with respect to any person or plan by reason of providing the material herein. Information and opinions expressed by individuals other than Goldman Sachs employees do not necessarily reflect the view of Goldman Sachs. Information and opinions are as of the date of the event and are subject to change without notice.

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