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How to Avoid Five Common Pitfalls During Wealth Transfer

The Great Wealth Transfer is forming the next generation of affluent individuals, with $68 trillion in wealth being passed along to the next generations across all income levels.1

Transferring wealth to the next generation is a complex process fraught with potential pitfalls. Not understanding the most common mistakes in the process can lead to multiple issues, including fractured family relationships.

It’s crucial to approach this process with diligence, foresight and a comprehensive strategy to protect your hard-earned wealth and ensure it benefits your intended beneficiaries. Here are some common pitfalls, along with strategies for overcoming them to ensure a smooth and effective transfer of wealth to your heirs.


1. Inadequate Estate Planning

One of the most significant pitfalls in wealth transfer is poor planning, leaving families unprepared for the wealth transfer process. In 2024, 40% of Americans earning $80,000 or more annually do not have an estate plan.2 Among those that do, it isn’t regularly updated, which can lead to confusion and disputes among heirs.

Creating and regularly updating your estate plan every three to five years or after major life events is crucial to avoiding these issues. Without a well-thought-out estate plan, your assets may be subject to probate. That can be a lengthy and costly legal process that can significantly decrease the value your estate.3

Failing to plan also can cause unintended beneficiaries receiving your wealth, potentially leading to family conflicts and legal battles.


2. Not Addressing Myths About Wealth Transfer

Several common myths can derail the wealth transfer process. Ensuring a smooth and intentional wealth transfer requires addressing three key misconceptions and recognizing the realities.


Myth 1: Equal distribution of assets is always fair.

Reality: Equal distribution of your wealth may not be the best approach because of different needs and circumstances among your beneficiaries. A child who has been more involved in a family business, a family member who has taken on caregiving responsibilities or has a special needs child might need or deserve a different allotment than other potential beneficiaries. It's essential to tailor your estate plan to reflect these individual situations rather than assuming equal shares are equitable.


Myth 2: A will is all that matters.

Reality: A will is an important part of your estate plan, but it doesn’t control everything. Here are types of assets that are passed on directly to beneficiaries without regard to your will.

Life Insurance and Retirement Accounts

These accounts typically have named beneficiaries who will receive the proceeds directly, bypassing the will entirely. This means the beneficiaries listed on these accounts will get the assets regardless of what your will says. It’s crucial to keep these beneficiary designations up to date to ensure they align with your overall estate plan. This is especially important after major life changes such as marriage, divorce, or the birth of a child.4

Jointly Owned Properties

If you own property jointly with someone else, like a house5 or bank account,6 this property will automatically transfer to the co-owner upon your death. This automatic transfer happens outside of the will. The beneficiary designation on those assets determines their transfer, not the instructions in your will.5

(Note: In some states, even a jointly owned house with rights of survivorship will still need to go through a probate process — and may even require that all assets go through a probate process. Talk to your estate attorney to figure out if this is something you need to account for in your planning.)

Besides retirement accounts, there are other investment accounts that pass directly to your designated beneficiaries when you pass. So do business partnerships.5 Talk to an estate attorney about how this works in your state.


Myth 3: Trusts are only for really wealthy people.

Reality: Trusts complement your will and can be a powerful estate planning, especially if you have complex assets or requirements.6 One of its biggest benefits of a trust is it can help you avoid the probate process. Assets placed in a trust usually bypass probate and can be distributed to beneficiaries more quickly and privately. They can specify how and when your children receive wealth,4 can have tax benefits6 and can protect a beneficiary's inheritance from lawsuits and divorce.7

Open hands and dollar sign icon
Assets placed in a trust usually bypass probate and can be distributed quickly and privately.

How these documents work depends on state laws, and whether they’re revocable or irrevocable.8 So, talk to a local lawyer about whether this document could benefit you in your estate planning.


Myth 4: Estate documents don't need regular updates.

Reality: Estate planning is not a one-time task. Life events such as marriages, divorces, births and deaths can significantly impact your estate plan. Regularly reviewing and updating your documents ensures they reflect your current wishes and prevent outdated instructions from causing unintended consequences.


Myth 5: You can make your estate plan without discussing it with beneficiaries.

Reality: While you may have specific goals for the wealth you transfer, failing to discuss them with your beneficiaries can lead to misunderstandings and family friction. Open conversations about your intentions can help manage expectations and reduce potential conflicts after your passing. This also allows beneficiaries to prepare better for their financial futures.


3. Failing to Consider Tax Implications

Ignoring tax ramifications can significantly reduce the wealth passed on to the next generation. In 2024, federal law provides an estate tax lifetime exemption of $13.61 million9 and an annual gift tax exclusion of $18,000 per person per year.10

Strategies such as creating irrevocable trusts, engaging in annual gifting and forming family limited partnerships can help reduce tax burdens.11 Gift taxes can apply to certain transfers, further reducing the value of your assets if you don’t manage them effectively.12

Working with experienced tax professionals and employing the right strategies can help decrease tax liabilities and preserve more of your wealth for your intended beneficiaries. When you talk to them, make sure they help you understand state-level taxes your estate will face when you pass away, too. 


4. Not Recognizing Family Dynamics and Communicating Issues

Family dynamics can have a significant impact on the success of your wealth transfer strategy. Not addressing them can lead to disputes, resentment and legal battles that exhaust resources and damage relationships. Differences in values and financial goals among family members can influence how assets are distributed and the methods used.

To handle these challenges, effective communication and a shared philosophy about wealth transfer are crucial. Besides involving family members in estate planning, regular discussions about financial issues and providing financial literacy education to those who need it can foster family solidarity. Open conversations about financial values, goals and expectations help align family members in a shared vision for generational wealth transfer.


5. Foregoing Professional Guidance

Going without professional help in estate planning can be a serious mistake. The wealth transfer process involves multiple legal, financial and emotional challenges that can be difficult to handle without the right professionals. These experts help you avoid costly errors and ensure you achieve your wealth transfer goals in a way that honors your wishes.

Carefully choose professionals like wealth advisors, attorneys and family counselors who specialize in estate planning for generational wealth transfer. They can provide invaluable insights and strategies tailored to your unique circumstances and bridge knowledge gaps, giving you confidence in your wealth transfer decisions. This can lead to a smoother transition of your wealth.


Be Thoughtful About Your Wealth Transfer Strategy

Wealth transfer is an opportunity to shape the future of your family. Avoiding common pitfalls in the process requires careful planning, clear communication and professional guidance.

By addressing these issues proactively, you can ensure that your wealth is preserved and effectively transferred to the next generation. You can help to foster a legacy of empowerment and financial stability that transcends mere financial assets. You can instill values and entrust future generations to build upon your success.

Important disclosure information

Asset allocation and diversifications do not ensure against loss. This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Kelley Wolfington, “Great Wealth Transfer: How Families Can Get on the Same Page,” Kiplinger, February 16, 2024. Accessed September 3, 2024. Back
  2. Rachel Lustbader, “Caring.com’s 2024 Wills Survey Finds That 40% of Americans Don’t Think They Have Enough Assets to Create a Will,” Caring.com. Accessed September 3, 2024. Back
  3. Barclay Palmer, “Avoiding Unnecessary Probate Costs,” Investopedia, December 3, 2022. Accessed September 3, 2024. Back
  4. Tim Parker, “Do Retirement Accounts Go Through Probate?,” Investopedia, April 30, 2023. Accessed September 3, 2024. Back
  5. James Chen, “What Is Joint Tenancy in Property Ownership?”, Investopedia, February 26, 2024. Accessed September 3, 2024. Back
  6. T. Rowe Price, “How to ensure your assets will be distributed according to your wishes,” July 12, 2024. Accessed September 3, 2024. Back
  7. Rebecca Lake, “How to Protect Trust Assets From a Beneficiary’s Divorce,” SmartAsset, April 20, 2023. Accessed September 3, 2024. Back
  8. Matthew Jarrell, “Will vs. Trust: What’s the Difference?,” May 21, 2024. Accessed September 3, 2024. Back
  9. IRS, “Estate Tax,” November 27, 2023. Accessed September 3, 2024. Back
  10. IRS, “Frequently Asked Questions on Gift Taxes,” November 27, 2023. Accessed September 3, 2024. Back
  11. Beverly Bird, “Spreading the Love: Tax Savings Strategies for Wealth Transfer,” January 10, 2024. Accessed September 3, 2024. Back
  12. Marc L. Ross, “What Are Gift Taxes?,” Investopedia, January 4, 2024. Accessed September 3, 2024. Back