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Wealth Transfer: A Bird's-Eye View

Updated: Dec 17, 2019

As each generation gathers wealth, it faces its own particular questions about how to conserve it for old age and for the generations to follow. As wealth transfer occurs, families need to consider income needs projections, risk management and interfamily relationships. And even though the estate tax now affects only a small group of the extremely wealthy, many states have much lower limits that have to be considered.

Baby boomers should be aware that they may be the wealthiest generation in U.S. history. And as they age and prepare to pass down a record-breaking amount of assets to their heirs, they are also enjoying their money ,while they can. One study found that one in six boomers plans to spend all their money before they die. Another survey notes that only 40 percent plan to leave inheritances.

If you are a Gen Xer, you may see your parents be as likely to gift their wealth to charitable causes, making the transfer of wealth to you smaller than anticipated. However the distribution of funds happens, you'll likely split up what's left among multiple heirs and even the children of heirs.

While expectations of a boomer payout may be exaggerated, there's also good news: The great wealth transfer is not yet upon us. Boomer, Gen X and millennial life expectancies will stretch into the late 80s and beyond. New business models must be created that are tailored to these generations' specific needs and behaviors.

As you shift your attention from accumulating assets to spending them down in retirement, you need a change in product portfolios and pricing models from financial planners. Integrated tax, retirement and estate planning services will be of important value going forward.

Whether you are part of the wealth transfer or are a wealth receiver, you still will be looking to reduce total tax liability while trying to preserve wealth over time. For boomers, selecting the right type of transfer — reversionary trusts, grantor retained annuity trusts, split purchase of a residence, corporate and partnership freezes, gifts to minors, gifts under a durable power of attorney — has to be weighed to minimize tax liability for current and future generations.

Other considerations

Although the federal estate tax affects only a handful of the wealthiest, there are other transfer issues for the wealthy, such as philanthropy. Aside from just doing good, there may be strategic reasons for long-term charitable planning that takes into account both your heirs' needs and the desire to leave a lasting legacy for the causes important to you. There are charitable trusts that can do this.

The earlier you start planning, the more choices you will have. It's never too early to start working with an estate planning attorney and financial professionals to ensure that your wealth transfer desires are set down in black and white — and that you have the wealth you need to achieve them. Give some thought to how your wealth transfer near the end of your life mirrors your philosophy of how you live your life.

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