How to successfully gift to heirs

Sharing wealth with family members is often a complex process. The best way to make sure your goals are met is to create a governance structure that can stand the test of time. We often see a lot of attention paid to the initial gift and structure, but then don’t see the full intention of the giftor come to fruition because of a lack of a thoughtful distribution policy, investment strategy and family governance.

Here are the areas to focus on:
When will funds be distributed to heirs?

Distributions generally work best when benefactors express clear intentions regarding how and when funds should pass to family members, whether as direct gifts or placed in trust.

When assets are held in trust, the distribution decisions legally must be made by the trustee, and they must be in accordance with the provisions in the trust document. Many trustees, however, find this to be a daunting task.

To increase the likelihood that your wealth-transfer intentions will be realized, make sure the trustees you choose fully understand their responsibilities and are committed to implementing your goals. Further, proactively communicating your intent to the beneficiaries can go a long way in preventing future family discord or putting the trustees in a difficult position.

How will the money you give be invested?

Time horizon and asset allocation

Generally, the first step in the investment process is assessing when your heirs are likely to need the funds, which naturally transitions into asset-allocation strategies.

Risk profile

This is informed by your (and also your heirs’) investment skills, financial needs, and psychological and financial willingness to assume risk. In our view, there are three key considerations – risk required, risk capacity and risk tolerance.

Both risk required and risk capacity are anchored in an investor’s goals and time horizon, and thus are more stable, while risk tolerance is less stable due to personal sentiment.

Will your wealth be preserved over time?

In our experience, the most successful families have a clear vision of what they want their wealth to achieve, are guided by shared values, encourage open communications among all family members and balance the needs of the current generation and the interests of future generations.

Some families choose to detail their governance policies in writing and to regularly review them at annual family meetings. Others take an informal approach. Whatever approach your family chooses, it is critical that you create a governance framework that promotes collaboration and a shared commitment to wealth preservation.

Rick Barragan is the Managing Director,
Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles

Source: J.P. Morgan Private Bank Insights, May 10, 2024. “How to Successfully Gift to Heirs” By Marc Seaverson, Wealth Strategist, J.P. Morgan Private Bank.