The generation gap has never been so big. Never before has understanding the distinct values and attitudes that characterize the generations played such a pivotal role in financial planning.

"What makes the transfer of wealth so unusual is that the money is moving from the hands of people who worked so hard for it to the hands of people who've had it great most of their lives," says Carrie L. Coghill, CFP, Senior Vice President with D.B. Root & Co. Financial Planning, an independent financial adviser in Pittsburgh.

Developing your ability to chart the unique perspectives that drive the investment decisions of each generation will improve your effectiveness with clients, focus your marketing efforts, and enable you to ride the money wave that's rolling in over th next two decades.

It's no secret that a tidal wave is upon us. Baby boomers, their children, and their grandchildren are poised to inherit more than $10 trillion. And the number and size of estates and inheritances are expected to rise sharply until about 2015, according to the National Institute for Estate Planners in Las Vegas.

"What we're seeing now is the tip of the iceberg," says Gail Buckner, CFP, senior vice president with Putnam Investments in Boston. To Louisa C. Guthrie, senior vice president, market executive, with Harris Bank in Chicago, attracting the coveted multi-generational client base is simply the result of "doing your job really well. If we're getting to know our clients to the extent that we should be, the planning process inevitably becomes multi- generational, hitting three or four generations."

Age—not profession or income— has become the primary way to segment the market, planners say. In fact, Frank Triolo, CFP, founder of Financial Management Strategies in Appletown, Wis., says he used to target "any client who wanted to work with me." Now he targets clients headed toward retirement. The majority of Triolo's clients are blue-collar workers at big companies, such as Proctor & Gamble, who invest- ed in the company's stock and are retiring "with more than $1.5 million in their 401 (k) plans," he says.

While the transfer of wealth offers many lucrative opportunities, it also provides you with a considerable challenge in meeting the needs of clients who have diverse savings and investing habits. To be more effective assisting your clients, you'll need to explore the range of ever-changing estate-planning strategies available that can lower estate taxes.

The time to start working with these clients is before the transfer of wealth begins. "if you wait until these dollars hit the market, it will be too late," says Elizabeth Connelly, vice president in the trust department of Commerce Bank in St. Louis. "It's important to cultivate relationships with younger investors now, because they're the ones who will be inheriting this wealth. If you wait five years, you'll miss the boat," she adds.

Connelly is getting her foot in the door early. She says Commerce Bank has lowered its minimum-balance requirements for new accounts, so that children receiving $ 10,000 gifts from their parents can start to develop relationships with the bank. "A lot of planners aren't doing any of this nurturing," she says. "It's the relationships that drive this multi-generational process. There's a lot of loyalty among families when they share money."

Sources of Wealth

The stock market boom these past 10 years is only part of the reason many elders have amassed more money than they ever dreamed possible. The wealth also comes from business owners-people who returned from World War 11, started businesses, and are now either selling them or retiring

In addition, stock options and retirement plans have made many investors rich, as has the trend of companies offering 401 (k) plans instead pension plans.

The switch to 401 (k) plans began in the 1970s, primarily as a result of competition, says Robert Philipps, general manager of Principal Financial Group in San Diego, the largest provider of 401 (k) plans in the country, with more than 30,000 plans. "More responsibility has been put into the hands of employees, as opposed to the employer funding the retirement plan," he adds.

Doug Regan, president of the Palm Beach country region of Northern Trust in Boynton Beach, Fla., sees a dramatically different investment character in each generation.

"The generation transferring the wealth created it, so these people have a strong connection to the money," Regan says. "They also see the stock market as a place to get poor, while the generation getting the money see the market as a place to get rich."

Multi-Generational Planning

One firm that has taken a creativ3 approach to client service and multi-generational marketing efforts is Freedman Financial Associates in Peabody, Mass. Marc S. Freedman, CFP, a partner with his father in the firm, likes to sit down with several generations of a family to discuss estate-planning issues.

"We have a conference room where we invite kids, parents, and grandparents to discuss their goals and wishes. These meetings are also an opportunity for parents to introduce their children to us," he says.

Five years ago, Freedman and his father held their first client-appreciation event, which also attracted mul- tiple generations to the firm-about 300 people showed up, including four generations of one family. "We thanked people for the business and didn't sell a thing," he says.

Another unusual way Freedman draws new generations to the firm is through a client-advisory council, which is composed of 24 clients representing the age and income demo- graphics of the firm's client base.

"We take our clients out to dinner and talk to them about what they'd like us to do," he adds.

Such dinners have led to seminar in which Freedman invites speakers to address topics of his clients' choice, such as how to talk to your parents about money and how to teach children about basic finances. Clients invite their children or grandparents to these seminars, and a new generation learns about the firm's services.

Freedman's goal is to meet every beneficiary of every client. "Why go elephant hunting and spend money mass marketing and Yellow Page advertising to start from scratch with new people walking in the doo when we already have good relation ships with our client base?" he asks.

A key to building a multi-generational practice is maintaining the privacy of each generation. "We make it clear in our initial conversation with a prospect that their situation is separate and will be kept strictly confidential from other family members," Freedman says.

Christine Hagen, CFP, with Fiducial Tripple Check in Santa Monica, Calif., agrees. "While parents often bring in their children, they don't want to be directly involved with their children's finances. They are separate and don't check up on one another."

While the goal of generational planning is clearly to perpetuate assets for as long as possible, through as many generations as possible, long-standing family feuds ca get in the way, planners say.

These feuds can be intensified by differences in age and attitude. "Much of the stress in cross -generational relationships arises when people of differ ent ages expect others to behave in ways their peer personalities won't allow," wrote William Strauss and Neil Howe in Generations (William Morrow & Co., 1991). The goal of their book to "promote understanding among the very unalike generations alive today."

One way for you to cope with generational conflicts that may arise among family members during the estate-planning process is to bring in a mediator.

Mediating Family Squabbles

David Gage, Ph.D., founder of BMC Associates in Washington, D.C., has been mediating family feuds for the past 10 years. He says mediation offers an impartial party who looks at the good of the entire family rather than the good of one family member.

"Estate planning is extremely personal, but it's often done in an impersonal way. We try to take a different approach," Gage says.

His approach involves having family members clarify their goals as well as the interests of others. "Our first discussion with the family is about what they want to have happen, how they'd each like to see things go," Gage says. "We start with a wish list."

As family members gain a better understanding of one another, hostilities often lessen, he adds.

Generational Investment Traits

Increasingly, planners are recognizing the benefits of understanding how their clients' generation affects their attitudes toward investing. Ken Dykwald, Ph.D, author of Age Power (Tarcher/Putnam, 1999), says that generational identity is a relatively new dynamic, brought about by rapid changes in technology, the media, and society.

"In the past, groups could be identified by social class, race, religion, or political affiliation," he says. "Today, people feel connected to the generation with whom they've shared so many experiences."

To help financial advisers and planners with this mission, Kemper Funds embarked on a "life-stage" marketing study.

"We began this research in 1995 as we started to learn that each generation has different perspectives and environmental factors driving their investment decisions," says David M. Swanson, director of marketing and product with Kemper Funds. "We don't think enough advisers look at clients from this perspective. Typically, they approach clients in terms of their risk tolerance," he adds.

The survey segments investors into five groups:

• Young boomers: the Yuppie Generation (mid-30s to mid-40s). This group is pragmatic and materialistic. Young boomers grew up in a bull market and see the market as a place to make money, not a place to lose it.
• Leading boomers: the Woodstock Generation (mid-40s to mid-50s). This group is idealistic and independent.
• Pre-retirees: the Eisenhower Generation (mid-50s to mid-60s). This group is conservative and conventional. Pre-retirees look forward to fulfilling deferred needs in retirement, such as taking a trip around the world.
• Matures: the Cold War Generation (mid-to-late 60s). This prosperous group of retirees worked hard and sacrificed all their lives. They struggle with concerns about outliving their savings and leaving wealth to their children.
• Elders: the World War 11 Generation (70s). This group wants security and guarantees. Elders are frugal and don't want to lose what they've worked so hard to attain.

This isn't to say that every member of every generation necessarily shares these common traits. As you might expect, your clients don't fall into neat categories. However, planners say these generalizations are a step toward helping them better understand each of their clients.

Attracting the Youth Market

Forget the stereotype of Generation X as surly, self-involved, and unemployed. You should instead think of these 20-somethings as active investors and potential clients.

A recent survey by Kemper Financial Services found that 58% of 20- to 29-year-olds contribute to a 401 (k) plan vs. 52% of baby boomers. And 44% of this group have savings accounts, while 40% invest in mutual funds.

And while adults ages 22 to 33 carry the greatest load of credit card debt, 48% of Gen-Xers-more than any other generation-say reducing debt is one of their most important savings and investment goals, second only to retirement, according to the survey.

Guthrie says Harris Bank is pursuing these younger clients, whom she calls the "new professionals" because many have just finished graduate school. "We use a life-cycle approach, in which we've mapped out the various stages of a career from new professional through retirement," she says.

Guthrie wants to work with these young investors even though "they have a negative net worth with all their student debt." The reason? "We want to hook them early," she says, "and send them in the right direction, so they make the right financial decisions."

Regan says Northern Trust has been pursuing a younger demographic through online-banking services and is rolling out a sophisticated online-bank ing network this month called the private passport system.

"This generation wants to get information quickly, so we're developing our online capabilities to make ourselves as attractive as possible to the next generation," he says. "The key to who succeeds with this younger market is who stays on top of technology without losing personal relationship."

How hard is it to gain the trust of these young investors? "Typically if Mom and Dad trust us, then usually the kids do, too," says Mark L. Prendergast, CFP, CPA, with Plan Financial in Fresno, Calif.

And it's never too early to approach young investors, planners say. A recent study by Merrill Lynch & Co. found that 11 % of 12- to 17-year-olds own stocks-through custodial accounts-higher than a year-earlier poll that found that 7% owned stocks.

Gifting: Tax-Saving Strategies

The estate and gift tax packs quite a wallop, starting at 37% and going up to 55% for estates valued above $3 million. "Uncle Sam is a 55% owner and partner of every one of our wealthy clients," says Janine Racanelli, trusts and estates lawyer with JP Morgan's private bank in New York. "This is a looming problem."

With the many tax-saving strategies available, "it's becoming increasingly critical for planners to be up to speed on new opportunities," Buckner says.

One opportunity that has been attracting attention lately is the 11 stretch IRA." These IRAs offer tremendous tax benefits and can enable an estate's tax-deferred growth to stretch from generation to generation.

By allowing people who inherit individual retirement accounts to name their own beneficiaries, these IRAs can extend the potential life of their tax-deferred accounts by as much as 70 years, planners say.

This feature is good news for the generation that's just starting to inherit IRAs from their parents and grandparents, and even better news for those who will inherit their IRAs. But the income tax bite for such accounts has yet to be clarified by the IRS.

"I expect mutual fund companies will gear up to provide this service once it becomes clear that it's legally recognized," says Buckner, who's also a registered stockbroker. "I know Putnam is poised to do so once we get a green light."

But the first and most traditional line of defense against the tax man is annual gifting programs, planners say. "For clients who are younger, gifting can have a tremendous impact on reducing the value of their estates by faithfully committing to a gifting program to their children," says Skip Gianopulos, CFP, senior vice president of financial-planning services at Harris Bank in Chicago.

A valuable exemption against the gift and estate tax is the ability to transfer $ 10,000 gifts tax-free to an unlimited number of recipients. Another option is W2 trusts, which provide income for offspring that matches their own income. These trusts prevent the trust-fund baby syndrome by providing wealthy offspring with an incentive to work.

Individuals can also take advantage of the exclusion for gifts that cover medical and educational expenses, Racanelli says. They can make these gifts by paying the medical and educational expenses of family or non-family members directly to the provider or institution, she adds. "The idea is to erode one's estate and enrich a family member or friend," Racanelli says.

Another popular generational-planning tool is the unified credit applied against the federal estate and gift tax. This credit allows individuals to transfer $650,000 per year to heirs-estate-tax free. This credit is slated to increase incrementally, reaching $1 million in 2006. "Our job is to make sure clients are making proper use of all the exemptions available to them," Racanelli adds.

Despite the challenges posed by the many tax strategies available to clients, planners say the multi-generational approach to estate planning is a rewarding process that shows no signs of slowing down.

"We're seeing more and more that planning for wealth transfer is not a one-time event but a dynamic process that needs to live and breathe with people," Racanelli says. "It needs to change and evolve as life circumstances change and evolve."