By David M. Kopyc, CRPC
The largest wealth transfer in the history of mankind will take place over the next three decades. It is estimated to be in excess of 80 trillion dollars. How will the Gen X and millennials manage this type of wealth and will they be able to work through the options they will need to take to protect these assets and minimize tax liability.
This transfer of wealth will take decades to play out, so most families will have time to take action to develop a plan to maximize their wealth transfer possibly for generations to come. It is critical to have discussions on how this wealth can be utilized for all the future events that will take place in your family’s lives (weddings, college education, charitable intent, future income sources, etc.).
Regardless how big your pot of gold may be, you need to develop an estate plan. A simple Will and beneficiary forms are important, but most of us will probably need to have a Trust or multiple Trusts. Probate is expensive and if you want your money to follow your bloodline, there are options and strategies to take to accomplish this.
There are too many situations with families that ended badly because there was a lack of communication between the family members. It is critical that heirs have open, honest discussions about what they would like from the estate so conflicts do not arise. While these conversations may be difficult and uncomfortable, it’s better to have your wishes known so there is absolutely no misunderstanding.
At my firm, we try to take a very proactive approach to legacy planning so we have a fairly good idea of the family situations and what the parent(s)’ thoughts are about wealth transfer. Blended families make the process a little more complicated, but you can achieve a desirable solution for both families. While this process can be daunting and stressful, it also allows the grantors to take an assessment of where they are. Some are astonished what the true value of their estate may actually be.
A lot of this wealth transfer is held in complicated assets that lack the ability to receive a step up in basis at death. IRA, 401(k), deferred comp, TSP, 403(b), SEP IRA are all pre-tax accounts. There is no step up in basis and as of today there is approximately 40 trillion dollars in these types of assets. These are monies that need careful guidance and a plan to be executed pre and post death. Do you want your loved ones to receive a tax liability or a legacy unincumbered by tax? Then it might encompass you taking action in your lifetime to accomplish this.
Real estate can also be a very complicated asset for wealth transfer. The lake house, the ski house, the primary residence that one of the children has a desire to keep. How do you get equalization so everyone is content with the outcome? The bottom line is, communication and open dialogue by all is imperative to have a successful legacy plan that serves all fair and well.
Hopefully this article has helped some of you to take action and build a wealth transfer strategy that will last for decades to come.