Can We Talk?

Baby Boomers will transfer trillions of dollars to Gen X, Millennials, Gen Z, and AI Babies over the next several years. According to several reports, the range is estimated to fall between $30 trillion and $75 trillion and is considered the most significant wealth transfer in history. However, I’ve heard about this wealth transfer for over three decades and have not seen any evidence yet. Maybe I’m looking in the wrong spots.

The wealth transfer may disrupt financial markets as Boomers pass their assets to the next generation, and beneficiaries sell stocks and bonds to buy homes, pay off debt,  fund college accounts, or travel the world. Is your family prepared for this epic wealth transfer? Let’s explore a few scenarios and categories.

  • Wills and Trusts. If you’re a Boomer with assets, you must update your will or trust to ensure it honors your wishes. The most efficient way to transfer assets to generations is through your estate documents. Dying without a will or trust can complicate your estate transfer for years or decades, depending on the level of your assets (Google Howard Hughes). An attorney friend told me he makes good money creating wills and trusts but makes excellent money settling estates without any documents or final instructions.
  • Beneficiary Data. A simple and efficient way to transfer assets to your loved ones is through your beneficiary designations on retirement accounts, annuities, life insurance, etc. Your beneficiary data overrides your will or trust, so make sure they are current and accurate. If you’re divorced or have remarried, don’t forget to change your beneficiary information because you don’t want your assets going to your ex-spouse.
  • Life Insurance. Are you worth $13 million or more? If so, consider purchasing life insurance inside a life insurance trust (ILIT) to pay your estate tax. A married couple can transfer $26 million in assets to the next generation before paying federal taxes. The estate tax rate is currently 40%.
  • Gifting. A simple way to reduce your estate and potential tax is to give your money away while alive. The annual gift-tax exclusion is $17,000 per year per person. Donating money to your favorite charity or non-profit is also a smart strategy.
  • Final Wishes. Letting your children or beneficiaries understand your last wishes is wise and recommended. Where will you be buried or cremated? Where are your important documents? How do you track your online presence and passwords? Informing your loved ones today can avoid several problems tomorrow.

What if you will inherit assets from your Boomer parents? A financial windfall can alter your life in several ways. Like your parents, it’s paramount that you plan so you’re ready to settle their estate and allocate your new assets. Working with financial planners, attorneys, and CPAs can ensure your assets are protected and invested correctly. Also, please don’t spend the money before it’s credited to your bank or brokerage account because you might not inherit anything. I’ve worked on thousands of financial plans and always ask about inheriting money, and there have only been a few incidents where I’ve included it in a plan because most people don’t want to count their chickens before they hatch.

A financial plan, estate documents,  and family conversations can ensure a smooth transition for a difficult and complex topic. Please don’t wait until it’s too late.

Can we talk? ~ Joan Rivers

June 3, 2023

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.

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