It is well documented that over the next few decades there is going to be the largest wealth transfer in history. It is estimated that more than $70 trillion will pass down from the baby boomer generation to generation X (Gen X) and the millennial generation1. For reference, as of the fourth quarter of 2022, baby boomers and the silent generation controlled almost 65% of the nation’s wealth, while millennials controlled a little over 6%. Gen X held a more respectable 29% of the nation’s wealth2.
Given the massive implications that are associated with this imminent wealth transfer it is important for baby boomer investors to be prepared for this shift to occur. With that said, our intention with this multi-part series is to create a menu of strategies to consider and conversational topics to have with your advisor and the next generation. The topics below are grouped into those focusing on financial matters (i.e. science) and the non-financial matters (i.e. art). Both are equally important, however we have found that more time is often spent on the former but it is frequently the latter that solidifies sustainable legacy planning.
Science
The science of wealth transfer, as we define it, is the process of actually moving money from one generation to the next in the most efficient manner- while considering estate and tax implications. These are the financial conversations that generally happen with your financial advisor, tax advisor and estate planning attorney. Examples of such conservations are included below.
- Estate Tax implications
- Gifting strategies (lifetime exemption and annual gifting limits)
- Tax strategies (Roth vs. Traditional IRAs, 529 accounts, etc.)
- Trusts vs. Will
- Irrevocable trusts (Examples include grantor retained annuity trusts or spousal lifetime access trusts)
Art
As noted above, the estate and tax considerations absolutely require attention, but arguably the art of wealth transfer involves the more difficult work. This category captures the challenging, and at times uncomfortable, conversations that a multi-generational family should be having to help ensure a proper handoff. Examples include the following:
- Family legacy
- Financial literacy for the next generation
- Gifting strategies (i.e. gift now vs. after passing; how much is enough for the next generation?)
As you may have noticed, there are some strategies that can be included in both art and science (i.e. gifting strategies). However, this is not the only topic that has carryover into both categories. As this multi-part series continues, you may observe that the financial decisions are oftentimes driven by non-financial reasoning. For this reason, we will plan to cover the art of wealth transfer prior to tackling the science of wealth transfer.
Since this is a multi-part series, it makes sense at this point to provide the roadmap for the upcoming articles.
- Blog Post 2: The art of wealth transfer and questions to consider
- Blog Post 3: Strategies surrounding the science of wealth transfer
- Blog Post 4: Conclusion and action items
Thank you for taking the time to read this post. We look forward to sharing information, strategies and our experiences in the upcoming blog posts.