A monumental shift in the financial landscape is underway. Dubbed the “Great Wealth Transfer,” this movement signifies one of the largest intergenerational wealth transfers of our time. Over the next 25 years, it is estimated that over $70 trillion will be passed down from Baby Boomers to their heirs and beneficiaries. This shift in wealth is likely to present both tremendous opportunities and difficult challenges for individuals, families, and the broader economy. To navigate this transition successfully, it is essential to work closely with a wealth advisor who can guide you through the intricacies of establishing long-term financial goals, estate planning, and tax strategies.
Retaining the value of your assets is one of the most critical aspects of transferring wealth. Personal property, investments, real estate, and business holdings intended to be passed on to heirs may be greatly reduced in the transfer process. The looming burden of tax liabilities, fees, or even poor investment decisions can diminish asset values when passed on to heirs. Unfortunately, many investors do not seek counsel on strategies that can mitigate the negative impact of these constraints and maximize the value of assets before transfer.
Proper structuring of your financial portfolio can help minimize these risks. Advisors may discuss various strategies, such as tax-efficient investment approaches and tools like family limited partnerships (FLP) or irrevocable trusts, that can protect your resources from needless taxation. In some instances, it may be beneficial to utilize additional options such as charitable trusts or lifetime gifts to help reduce the value of your taxable estate. Studies have shown that proactive estate planning can significantly reduce the estate tax burden and preserve more wealth for future generations. The intention here is to retain more of your wealth and pass it on for the purposes you intended.
Wealth transfer will also highlight the similarities and differences between generations with how they approach philanthropy. Charitable giving is often personal and affected by experiences. Preparing for continuity of giving to causes, or working together to begin new contributions is another important aspect to address.
In our experience, we have found that many clients are challenged with how to best help their children when it comes to financial literacy and, more importantly, their potential future inheritance. Oftentimes we hear such responses as, “I don’t want my kids knowing how much money we have,” or “We plan on spending every last penny!”
Given our understanding of behavioral finance, we empathize with the dilemma in helping your children yet maintaining autonomy. We can help. Having us involved to facilitate a discussion while respecting your privacy will result in a more educated, responsible future investor. If you, for whatever reason, are not ready to have these discussions, please consider at least introducing us to your children so that they can benefit from our expertise and experience.
Determining a plan to transfer wealth should be considered a process that occurs over time, as it is often necessary to adapt to changing circumstances. Shifts in the economy, changes in tax laws, and even unpredictable changes to personal and family dynamics can require a plan adjustment. At Biondo Investment Advisors, we welcome the opportunity to discuss these topics further and to clarify the financial objectives and wishes that are most suitable for you. At your convenience, you are welcome to reach out to me or any member of the investment advisory team to help ensure a smoother transition of assets when the time comes.
Sources: The Brookings Institution. (2022). The Great Wealth Transfer: Forecasting the Next Big Wealth Wave; American Bar Association. (2023). Estate Planning Strategies to Minimize Taxes.; Family Business Alliance. (2020). Wealth Education for Heirs: Why It Matters.