Generational Wealth Planning: How Families Transfer Wealth and Prepare the Next Generation
Building wealth takes decades. Passing it on well takes planning. Generational wealth planning is the work of deciding how assets will move from one generation to the next, how that transfer may be taxed, and how heirs will be prepared to manage what they receive. Families who treat it as a single estate document often find the hardest parts, such as taxes on inherited accounts or a child unready to manage a large sum, were never addressed.
This article covers the main pieces of generational wealth planning and how investment, tax, and estate decisions work together.
Start Here: A Complimentary Wealth and Tax Review
Compound offers a complimentary, no-obligation wealth and tax review for families thinking about wealth transfer. A review may include:
Assets and titling: how accounts, real estate, and business interests are owned today
Beneficiary designations: whether they match your intentions and estate documents
Tax characteristics: which assets are pretax, Roth, or taxable, and how heirs may be taxed
Gifting and charitable plans: what you are doing now and what may be worth discussing
Family readiness: how and when the next generation is involved
Request your wealth and tax review.
What Is Generational Wealth Planning?
Generational wealth planning coordinates three things over time:
What you transfer: investments, retirement accounts, real estate, a family business, and personal property
How you transfer it: lifetime gifts, trusts, beneficiary designations, and your estate plan
Who receives it and how prepared they are: children, grandchildren, and charities
The first two are mostly technical and are handled with your estate attorney, tax advisor, and wealth advisor. The third is personal, and it is often the reason plans succeed or fail.
Wealth Transfer: Lifetime Gifts and Transfers at Death
Families generally move wealth in two ways.
Lifetime gifts. Gifts made during life can reduce the size of a taxable estate, let you see the impact of your generosity, and give heirs a chance to learn while you can guide them. Annual gift exclusion limits apply, and larger gifts may use part of your lifetime exemption. Gifting assets expected to grow may move future appreciation out of your estate. However, gifted assets usually keep your original cost basis, which can mean more capital gains tax for the recipient later.
Transfers at death. Assets passing at death may receive a step-up in cost basis under current rules, which can reduce capital gains tax for heirs who later sell. This is one reason the choice between gifting now and transferring later deserves careful analysis.
Trusts can add control and protection to either approach. Your estate attorney can explain which structures fit your goals.
How Taxes Shape What Heirs Actually Receive
Not all inherited dollars are equal. A taxable brokerage account, a traditional IRA, and a Roth IRA of the same value may leave heirs with very different after-tax amounts.
Traditional retirement accounts generally carry income tax when beneficiaries withdraw, and current rules require many non-spouse beneficiaries to empty inherited accounts within a limited number of years.
Roth accounts may allow qualified withdrawals free of income tax, which is one reason some families evaluate Roth conversions during lower-income years. See our guide to a pretax to Roth conversion strategy.
Taxable accounts and real estate may benefit from a basis step-up at death under current law.
Federal estate tax applies only to estates above an exemption amount that has changed many times. Wisconsin does not currently impose its own estate or inheritance tax, though that can change, and property in other states may be subject to their rules. Wisconsin is also a marital property state, which can affect how assets are owned and transferred between spouses. Coordinating tax planning and preparation with estate planning helps keep these effects in view.
Investing for More Than One Lifetime
A portfolio meant to support several generations may have a longer time horizon than one built only for a retirement. Wealth management for multi-generational families may separate assets by purpose, such as current income, long-term growth for heirs, and charitable goals, with each pool invested accordingly. The Compound calculator can illustrate how a hypothetical sum may grow over a long period and how taxes affect that growth. Results are hypothetical and for illustration only.
Preparing the Next Generation
Next generation wealth planning is as much about people as accounts. Families often consider:
Financial education that matches each heir's age and experience
Family meetings to share values, intentions, and plans, at whatever level of detail feels right
Gradual responsibility, such as involving adult children in charitable decisions or a family investment committee
Introducing heirs to advisors so relationships exist before they are needed
Families with complex holdings may benefit from family office wealth management that coordinates wealth across generations.
When a Family Business Is Involved
A family business adds questions of control, fairness, and timing: which children will run the company, how heirs outside the business are treated, and how ownership will be transferred. Our articles on next generation business transition planning and planning for generational ownership changes cover these issues in detail.
Working With Families Across Wisconsin
Compound works with families throughout Wisconsin, including Milwaukee, Madison, Green Bay, Appleton, Brookfield, Oshkosh, Wausau, and Eau Claire, as well as surrounding areas. Our family office services in Wisconsin article describes how coordinated support may work for more complex families.
Ready to start the conversation? Request a complimentary wealth and tax review.
Frequently Asked Questions
What is generational wealth planning?
It is the coordinated process of deciding what assets pass to the next generation, how they transfer, how the transfer is taxed, and how heirs are prepared to manage them.
What is the most tax-efficient way to handle wealth transfer?
There is no single answer. Lifetime gifts, transfers at death, trusts, and Roth conversions each have tradeoffs, and the right mix depends on your assets, heirs, and goals.
Does Wisconsin have an estate tax?
Wisconsin does not currently impose its own estate or inheritance tax. Federal estate tax rules and other states' rules may still apply, and laws can change.
How do I prepare my children to receive next generation wealth?
Many families start with age-appropriate financial education, share values and intentions through family meetings, and gradually involve heirs in decisions.
Does Compound work with families outside of Wisconsin?
Compound serves clients throughout Wisconsin and in surrounding areas. Availability of investment advisory services in a given state may depend on registration requirements.
Compound is a registered investment adviser. Registration does not imply a certain level of skill or training. This article is for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. Tax laws are complex and subject to change. Strategies discussed may not be suitable for everyone, and there is no guarantee that any strategy will achieve its objectives or reduce taxes. Calculator results are hypothetical, are not guarantees of future results, and do not reflect any actual investment. Investing involves risk, including possible loss of principal. Diversification does not ensure a profit or protect against loss. Please consult your tax, legal, and financial professionals before acting on any information in this article. For more information, see Compound's Form ADV, available at adviserinfo.sec.gov.
About Compound Wealth
Compound Wealth believes many financial decisions benefit from being evaluated together rather than independently. The firm integrates tax planning, wealth management, accounting, and business advisory services to help clients navigate financial complexity through a coordinated planning approach tailored to their evolving needs.
