Families who have worked hard to save and build wealth for themselves are often motivated by a secondary goal—to pass on a legacy and set their heirs up for success. According to Fidelity's latest State of Wealth Mobility study, nearly three-quarters of Americans are hopeful the next generation will attain a higher level of wealth than they have today.
Undercutting that optimism, however, is a lack of confidence that wealth transfer plans will succeed. Only about half the respondents to Fidelity’s survey reported feeling confident in having taken the right steps to build and protect their wealth, with roughly a quarter not feeling confident at all.
“Planning ahead, and open communication, are essential to a successful wealth transfer plan,” says Rich Compson, head of Wealth Solutions at Fidelity Investments. “The reality is that many find it difficult to take these steps.”
“One common misconception is that wealth transfer is something only people with millions need to think about,” Compson continues. “But a vast number of Americans have at least some assets getting passed down to their heirs.”
Ready to start building a plan to create generational wealth? The following steps can help get you started.
1. Reflect on your legacy goals
Wealth transfer starts with a strong holistic financial plan, explains Richard Martin, an advanced planner at Fidelity Investments, who helps educate clients about estate and business planning strategies. “Some clients are so concerned about running out of assets, that they can’t bring themselves to consider what might be left over after their death,” Martin says. “You need to start with the confidence that you’ll be OK.”
In initial client meetings, Martin reviews clients’ wills and the beneficiaries listed on their accounts to ensure they reflect how they want their assets distributed. He encourages them to think through their plans for distributing complex assets, such as vacation homes or valuable or sentimental heirlooms that they might hope to keep within their family.
Martin also discusses family dynamics that have the potential to derail wealth transfer plans. “For example, do their children get along or are they at odds over simple issues? Is there jealousy? Can they handle the decisions necessary when they inherit assets?” he asks. Other issues he encounters regularly are questions around fairness between siblings, and the complexities of a blended family.
2. Consider strategies for asset protection
The possibility of losing hard-earned wealth weighs heavily on Americans, with 4 in 10 of those Fidelity surveyed worried that they could lose their wealth just as quickly as they earned it. These fears aren’t unfounded: Without proper planning, explains Martin, unforeseen events such as a large estate tax bill, infighting among family members, or litigation can put a family’s generational wealth-building goals at risk.
Families concerned with taxes have numerous strategies to consider that can help reduce the risk of federal estate and gift taxes. One of the simplest strategies is to gradually reduce your taxable assets by using your annual exclusion: In 2025, individuals can give away up to $19,000 (so $38,000 for a couple) each year, to as many people as they would like before it impacts their lifetime exemption. “Annual exclusion gifts can make a big impact over time,” notes Martin. Families who think they may exceed the current limits may want to explore the use of irrevocable trust solutions to help improve tax efficiency. They also can help protect assets if you or your heirs are in professions that come with a high risk of litigation.
It’s important to keep in mind that laws can change at any time, counsels Martin. “The amount you can pass to family members can fluctuate depending on who is making the laws and the state of the economy,” says Martin. There are also state taxes to consider—a dozen states impose some form of estate or inheritance tax, at exclusions far lower than the federal amount—as well as the potential for asset growth over time.
Trusts can also be an important tool to help you control who will receive distributions of your wealth, and on what terms. “Think of trusts as a surrogate of sorts—that is, something that can follow your instructions when you’re not there anymore,” explains Martin. For example, what if a child has a substance abuse issue or just can’t seem to save money? How might you ensure all your children are taken care of in the event you divorce and remarry? Certain types of trusts can address specific situations, such as protecting a child with special needs, or to ensure continuation of a philanthropic legacy.
3. Communicate your intentions
“In my experience, the paperwork is the easy part, the attorneys will take care of that,” says Martin. “It’s emotional decisions and the conversations that are hard.” You’ll need to decide who will serve as executor or trustee of your estate, as well as guardian for any minor children.
While trusts can offer some measure of control, they shouldn’t be a substitute for helping your heirs understand the “why”—that is, your money values and goals for your wealth. “Especially at first, you can provide as much or as little financial information as you wish,” says Martin. “For example, you may want to share your overall plan but limit the discussion to hypothetical numbers. Or you can slowly introduce family members to your advisors, create accounts for them, and allow them to learn the financial planning process.”
If your estate plan includes a trust, your trustee will need to oversee and make decisions about distributions, which can easily become complicated by changing family circumstances. A side letter of instruction, while not binding, can help your trustee prioritize and follow your intentions and values.
4. Activate and follow up on your plan
Once you’ve created a plan, make sure to follow through, by adding or updating the beneficiaries on your accounts or properly funding your trust.
It’s also critical to regularly check back in with an attorney and financial professional, especially if anything has changed in your family. New laws, birth, death, remarriage, or moving to a different state all necessitate a careful review and potential update to your plan.
Communication, trust, and using the right tools are the keys to helping lift up future generations, and give greater meaning to the assets you’ve spent a lifetime accumulating. “At the end of the day, this is about honoring your family in the best way. Don’t wait to start having these conversations,” says Compson.