The Great Wealth Transfer & Financial Planning

Supporting families to achieve their goals is at the heart of financial planning. This encompasses investment management, retirement planning, tax planning, estate planning, and more. For many people, setting up future generations and leaving a lasting legacy is the ultimate aim.

Over the next 20 years, the Silent Generation and Baby Boomers are expected to pass $84 trillion to younger generations, which is the largest wealth transfer in history.¹ This shift isn't just about money changing hands - it's fundamentally changing how families approach financial planning and legacy building.

Whether you're considering how you will pass on assets or expecting to receive them, it requires careful navigation. The difference between preserving family wealth and mishandling it often comes down to having the right professional guidance.

Generational wealth transfers are getting bigger and more complex

Unlike previous generations who relied mainly on pensions and Social Security, many of today's retirees have built substantial wealth through investment portfolios and retirement accounts. Federal Reserve data shows that Americans over 70 now hold 34% of their assets in stocks and mutual funds, compared to just 12% in 1989.²

This shift from pension plans to 401(k)s and individual retirement accounts (IRAs) means families are dealing with larger nest eggs and more complex structures. Understanding the strategies available is key to ensuring smooth transitions and optimal outcomes.

Strategies to consider when optimizing wealth transfers

Many people think legacy planning simply means writing a will. However, effective wealth transfer strategies involve much more. They require optimizing for tax implications, coordinating multiple account types, and considering advanced options such as trusts. A few examples include:

• Tax-Efficient Lifetime Giving: Should you gift money during your lifetime? It is important to determine if lifetime giving fits your situation while ensuring you maintain adequate resources for your own needs, as well as considering taxes and structures. For example, there can be significant tax advantages to gifting into a donor-advised fund for those with charitable intentions.
• Education Funding: By investing in education, you can provide young family members with the tools and knowledge needed to build successful futures. Direct tuition payments usually won't count against gift exclusions, making education funding especially tax-efficient. For larger families with multiple grandchildren or great-grandchildren, education trusts may also be considered.
• Asset Location Optimization: Strategic placement of investments across taxable, tax-deferred, and tax-free accounts can significantly impact outcomes. For example, if you have large unrealized capital gains in a taxable account, you have options to minimize the tax burden. This might include waiting until after death for the cost basis to “step up,” or potentially deciding to gift that asset to charity over time.
• Advanced Planning Techniques: As wealth transfer amounts increase, sophisticated strategies become valuable. These might include trusts with specific distribution provisions, charitable components, as well as coordination between different asset types. 

An opportunity to create a lasting legacy

Generational wealth transfers represent a significant opportunity to create lasting impact. However, they also require careful planning to ensure smooth transitions and optimal tax treatment.

Many wealth transfer disputes arise not from insufficient assets, but from poor planning, unclear intentions, or a lack of preparation among heirs. The complexity and size of modern portfolios require thoughtful planning, involving business interests, retirement account beneficiaries, and coordination between liquid and illiquid assets.

Working with a financial advisor ensures your wealth transfer strategy serves its intended purposes and creates the lasting legacy you envision.

1. https://www.cerulli.com/press-releases/cerulli-anticipates-84-trillion-in-wealth-transfers-through-2045

2. https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/

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