You’ve undoubtedly heard the expression “The Great Wealth Transfer” in recent months. However, what does it mean for you and your family? A recent article from The Street, “The Great Wealth Transfer: Strategies for Beneficiaries,” explains how the anticipated transfer of more than $84 trillion will impact families.
Between 2020 and 2045, a massive amount of wealth is expected to transfer from baby boomers to Generation X, millennials and Generation Z. As more people live longer and wealth from increases in home equity and investments, the assets will eventually be passed across generations. How wealth has been transferred to heirs has changed, drawing the attention of estate planning attorneys and financial advisors.
In the past, wealth was typically created through owning a family business or inheritances from multiple generations. Today’s wealth takes many different shapes, including investment growth, home equity, cryptocurrency and retirement accounts. Inheritances are more likely to come from a complex financial portfolio than from inheriting a farm or family business.
Attitudes about inheritances and money are also shifting. Millennials and Gen Z members have grown up in times of economic instability and may be less focused on stewarding wealth for the next generation. These generational differences may create family stresses, which can be avoided through estate planning and family discussions. Open conversations about these differences can prevent surprises or assumptions.
Minimizing or avoiding taxes and unnecessary expenses is always part of estate planning. Trusts are used to minimize both estate taxes and probate costs. Using a revocable living trust allows the trust creator to control assets during their lifetime and avoid having assets go through probate after death. Using an irrevocable trust also removes assets from the estate and can be used in planning for other needs, like a Medicare Asset Protection Trust.
Gifting with warm hands, or giving during your lifetime, is a way to reduce the size of a taxable estate and enjoy seeing the impact of a gift on a family member or beloved friend. In 2024, individuals may gift as much as $18,000 per recipient yearly without incurring gift tax. This reduces the taxable estate considerably, as there is no limit on the number of recipients a person can give a gift to.
A step up in basis lets the value of inherited assets be “re-set.” Someone inheriting a stock portfolio worth $100,000 at its inception but now worth $1,000,000 has a new cost basis. When you sell the asset, you will save substantial capital gains taxes upon the sale of the asset. The new cost basis is the $1 million valuation, not the $100,000 purchase price. Talk with your estate planning attorney about how to best manage this kind of transfer if it is in your future to obtain the best possible results.
Working with the right professionals can make an enormous difference when managing wealth is new. An estate planning attorney with knowledge of wealth transfer laws and tax planning can prevent heirs from being blindsided by unexpected taxes.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: The Street (Oct. 28, 2024) “The Great Wealth Transfer: Strategies for Beneficiaries”
