Transferring Wealth Tsunami

Forbes magazine reported in 2019 that the greatest wealth transfer in our history was underway due to Baby Boomers coming into the retirement years in droves equaling a staggering $30 trillion in wealth to younger generations. This massive amount of wealth being left to next generations is being called the “great wealth transfer.” In no prior time in the history of America has such a vast amount of wealth moved through the hands of generations.

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According to this article, Boomers’ wealth accounted for 70% of all disposable income in 2021. 

So, what does this mean for you if you are the next generation? 

It means you should be asking your Boomer parents or grandparents more about how their estate plans may impact you, should they unexpectedly pass away or if they have made accommodations for living a long life, if wealth transfer is important to them. 

A Taxing Situation

Recently one of my relatives inherited an asset that was split among siblings. Fast forward to tax preparation, and she learned, much to her surprise, that she owed $20,000 from her portion of the asset. She had placed the full amount into investment for retirement, not realizing it would be taxable, and then she couldn’t touch the retirement account without penalty. Luckily, she had enough in savings to cover the taxes, however, in many cases a tax bill like this would cause due hardship if you are not prepared for it. 

5 Things Wealth Transfer Should Consider

1. Multigenerational households: According to an article in USA Today, 35% of households have adult children ages 18-35 living with their parents. Add to this that 75% of middle-aged Americans are also caring for or providing financial support to an elderly parent or family member, with approximately 14% of overall households having an elder parent living at home. How is this being considered in estate planning? Will accommodations be made so that the remaining family members can stay in the home? Is the home expected to be sold and divided by all beneficiaries, and if this is the case, who may be affected that isn’t being considered?
2. Not Opting Out: Make sure you know for sure that there is a life insurance policy in place, and don’t assume that there is. Another client of mine also had a big surprise when a life insurance policy thought to be in place had been cancelled during a moment of lucidity by a stepfather with dementia, leaving her mother without any funds for funeral expenses, requiring her mother to dip into her pension with penalties to pay for his final expenses. 
3. Long Term Care: If wealth transfer is important to the family legacy, yet long-term care isn’t considered in the financial planning equation, what was expected to be left to the next generation can be consumed by long-term care very quickly at $4000 for part-time in-home care up to more than $10,000 a month for nursing home care, and is continuing to escalate according to research published by the American Action Forum. Many life insurance policies allow for a long-term rider to cover a portion or a majority of long-term care expenses.
4. Tax Implications: Taking into consideration the amount of tax beneficiaries may need to pay should also be considered. As the Taxing Situation case example also emphasized, knowing what is taxable and what is tax-free or deferred is important to everyone’s financial planning. If there are going to be significant taxes through taxable assets, then should a life insurance policy and also a trust be established to ease some of the tax burden?
5. A Clear Will: A family with millions in assets included a Boomer son and two daughters when their parents passed away within eight weeks of one another. The son, who was also the executor, ran the family businesses and the will stated that all businesses would be left to him. It was understood that all real estate property, which was significant, would be divided among all three siblings. However, the father put all real estate holdings into a Limited Liability Company and the son claimed that was a business too, and therefore, deemed that the will was clear, and all of these properties were his as well. As alarming as this is, the fact that the will did not specifically state all real property would be divided among the three of them allowed this greedy brother to cut his sisters out of these asset allocations. Make sure that what is intended with assets and wealth transfer is actually clearly stated in the will, so no assumptions or misinterpretations can occur. 

When it comes to wealth transfer, there are many things to consider beyond these five I have listed above. The more you know, and your parents or grandparents know, the more everyone can be prepared when the time for transfer of wealth and assets occurs. 

For Your Future,

Lori Capozza Zeind
www.lczconsulting.com

P.S. For more articles on charitable and financial planning insights, check out my Insights Library by CLICKING HERE.