Intergenerational Wealth Transfer and How to Prepare

How to Prepare For The Largest Generational Wealth Transfer in History

When wealth passes on from one generation to the next, this is called an intergenerational wealth transfer. In the upcoming decade, baby boomers will be passing down their collected wealth to younger generations in what will likely be the largest wealth transfer in history.
The term “baby boomer” is derived from the rise in births that took place from 1946 to1964 after the return of soldiers from WWII. Growing up in a prosperous post-World War II economy, with declining tax rates on high-income households, and rising real estate and stock market valuations allowed this generation to become the wealthiest in history.
Baby boomers are expected to transfer $30 trillion in assets to their heirs in the United States alone. $9 trillion of which are liquid assets, while the remaining majority of $21trillion are private businesses or illiquid assets held in trusts. Though some of that money will be eaten up simply due to people living longer, the rising cost of retirement, long-term health care, and taxes before it can be passed on.
According to research done by Stanford University on over 3,000 families, nearly half of all intergenerational wealth transfers fail. Heirs often have little to no knowledge about their inherited estate or how to manage it, which can lead to poor decision-making.
Not to mention that in the United States there is a tax charge of 40% for estates that are valued over $12.6 million, further putting your wealth in danger. Having a secure financial and retirement plan can minimize the amount of money you lose to these outside factors.
The following are a few steps you can take to ensure your wealth transfer is successful:

Involve Your Heirs

Involving your family or future heirs in your estate planning, and introducing them to your wealth manager is a good way to educate them on how you would like the estate to be managed. Create a plan with your advisor and heirs for how you would like the money to be used, and develop family goals for your wealth.
Providing this foundation of knowledge will inform the way that your heir will manage the estate once they take charge, and help them avoid any major mistakes.
Keep your will up to date and, be sure to keep your financial documents in a secure place where your heirs will have access to them once you are gone.

Minimize Estate Taxes

In order to reduce the amount of taxes on your estate, you will have to find ways to reduce the size of your estate. One option is to hand off portions of your wealth to family members through gifts while you are living. Throughout your lifetime, you can give out up to $12.06 million (double for married couples) of your wealth as gifts before getting taxed on those gifts. Each tax year you can gift any person up to $15,000 tax-free.
Another way to avoid taxes on your estate is to transfer part of your wealth into a charitable trust. There are two types of charitable trusts: charitable lead trusts (CLTs) and charitable remainder trusts (CRTs). By donating to charity, you’ll lower the value of your estate and end up with an extra tax break. Once you pass away, or after a certain time, the money is given to the beneficiaries. Your advisor can provide more guidance on which trust is best for you.
A family-limited partnership is a way to pass on family-owned assets such as businesses or properties while limiting the amount that will be taxed. Family limited partnerships allow you to maintain control over your assets as a general partner, but your chosen partners will own a portion of your assets. As a result, the size of your estate will be smaller. Many times you can sell or gift a percentage of an illiquid asset at a discount due to non-marketability and liquidity allowing one to transfer a greater sum of their estate over time.

Consider a Living Will

A traditional will requires you to go through the probate process, which comes with some unnecessary expenses. The probate process is the legal process in which a will is reviewed to determine whether it is valid and authentic and the general administering of a deceased person’s will.  
In a living will you can bypass the probate process and still remain in control of all of your assets. A living will also allow you to ensure that your money gets to the right people. Limitations can be placed on who your beneficiaries are allowed to transfer their inherited assets to, and allows you to put limitations on your inheritance if you are worried about the beneficiary mismanaging the assets.  
A successful wealth transfer is characterized by good communication, knowledge, and planning. If you are struggling with your plans for your financial future, Ulrich Investment Consultants has the knowledge and experience to help guide you through it. Reach out to us here: We are ready to answer any questions you may have, and start finding the right solutions for you.
Disclaimer: Ulrich Investment Consultants is registered as an investment adviser under the United States Investment Advisor Act of 1940, as amended, with the Securities and Exchange Commission. This is for informational purposes only and its contents should not be construed as a recommendation. The information on this social media site alone cannot, and should not be used in making investment decisions. Investors should carefully consider the investment objectives, risks, charges and expenses associated with any investment.