Your investments: International generational wealth transfer

It’s vital that assets be earmarked per individual family to avoid quarreling. Far too many times large families have become embroiled in inheritance issues

By AARON KATSMAN
Bank App (photo credit: BANKAPP.CO.IL)
Bank App
(photo credit: BANKAPP.CO.IL)
With many parents in Israel for the holiday season visiting children and children here visiting parents, I have had many meetings with entire families as they try and create a plan to smoothly transfer their wealth to the next generation.
“We are currently witnessing the ‘Great Transfer’ of wealth from the Greatest Generation to the baby boomers, according to Bank of America’s Sarbjit Nahal and Beijia Ma. The Greatest Generation refers to the generation in the US that experienced the Great Depression and then fought in World War II, and was coined by Tom Brokaw.”
But Nahal and Ma point out that “a second and even larger wealth transfer from the Boomers to their heirs is starting now and will continue over the next 30 to 40 years.”
The great transfer will see a handover of about $12 trillion from those born in 1920s and 30s to the boomers. But the boomers are expected to transfer some $30 trillion in assets to their heirs over the next 30-40 years in just the US” Family members feel it’s taboo to talk about inheritance.
On the one hand the children don’t want to appear greedy and also don’t want to put an ayin hara (evil eye) on their parents, and on the other hand, the parents don’t want to upset their children by talking about their death.
Avoid family feud
I recently met with two brothers who had both moved to Israel, but had a property business back in the US. They still had all their property joint owned, and both brothers were in their mid-eighties. One brother had seven children, all-living in Israel. The other brother had four children, two of whom are still living in the US.
The brothers explained to me that they were still waiting to divide up the property among the two families, because they were thinking of developing some of the property and felt that since they were both in good health (they should live until 120), it wasn’t necessary to make these kinds of plans.
What they neglect to internalize is that they were both having some health issues, and that they were getting older.
I explained to them just how important it was to divide things up, at least family by family. I told them that I have seen far too many times when large families get embroiled in inheritance issues.
Even the closest of families can be torn apart by this process.
Each child has an agenda.
One child is about to start marrying off children, wanting to help out the newlyweds and sell all the property so they can get the money as soon as possible. Another sibling may want to go ahead and actually develop the properties.
The point is that since each child has independent goals and needs, they will fight vehemently for what they perceive is the correct course of action. The aforementioned case is even more problematic because the properties are all in the US and nine of the 11 children live in Israel. Just imagine 11 children, living on different continents, all with different financial goals and needs, trying to come to equal terms with the real estate.
Divide assets
If the assets in question are in cash or a stock portfolio, then the transfer of wealth is much easier, and doesn’t necessarily need to be done while the parent is still living.
Since these assets are liquid, basic laws of inheritance apply and while there will be paperwork involved, the process is relatively painless.
Not so in the case of property.
Therefore it’s vital that assets be earmarked per family to avoid family quarreling. I would go as far as saying that even within one family it should be made explicit by the parents what they want done with the property ( i.e. sold or kept), so as to keep family harmony.
Process
Sit down with your partner and figure out how much everything is worth. Then start dividing things up. It’s a good idea to do this in conjunction with a lawyer, accountant and a financial advisor to make sure that the asset swaps and transfers are done in the most tax-efficient way possible.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.
aaron@lighthousecapital.co.il.
Aaron Katsman is a licensed financial professional in Israel and the United States who helps people with US investment accounts. He is the author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing.