We Baby Boomers currently hold 50% of all wealth in the US.
A huge transfer of wealth from Baby Boomers to Millennials and GenZers is expected to take place in the next 25 years. Estimates of the amount range from $50 trillion up to $93 trillion. Are you prepared?
No matter if your assets are in the millions or in the low thousands, inheritance has the potential to cause disagreements among family members. One of the hardest parts of estate planning is navigating interfamily dynamics according to a Key Private Bank survey cited by AARP. The best way to avoid this is to communicate, communicate, communicate and plan ahead.
The best way to ensure that your assets are distributed the way that YOU want is to have an estate plan. Estate planning is not only for the wealthy; everybody needs to have a plan in place for asset transfer. The alternative is to allow the government to decide. A will is a critical part of the estate plan. This is not only where you designate who gets what asset but it is where you specify who will take care of minor children, if any.
Communicate your desires in advance. Certainly, notify the person you are designating as the executor of your estate and the person or people who you want to have look after your children.
Some things to be aware of: even if your estate is under the threshold for the federal estate tax – currently $13.61 million per individual – heirs may owe federal income taxes and possibly state inheritance taxes on some assets and retirement accounts. As we discussed in our last blog, the beneficiary of an IRS must take all of the funds out by the end of the year containing the 10th anniversary of the death. An option to reduce the tax burden on your beneficiaries is to convert some or all of the IRAs to Roth IRAs and pay the taxes now on the distributions – as an extra gift to your beneficiary.
One of the first steps to take in setting up an estate plan is to review Beneficiary and Transfer on Death (TOD) designations. Typically, retirement accounts offer a place to designate a beneficiary while non-retirement or brokerage accounts would use a TOD. A beneficiary or TOD trumps what is written in a will so it’s recommended to review this information after every major life change like the birth of children or grandchildren or divorce and remarriage as well as at least yearly.
Coming up with the estate plan is the easy part. It is much more difficult to tell your heirs what you plan to do. Many families have a taboo against talking about money and mortality but the only way to ensure that your children or other heirs, including spouses, are prepared is to let them know. Let them know approximately how much they stand to inherit. Let them know if you plan to leave more to the sibling who acted as the primary caregiver. Let them know if you’ve established a trust so that the money can be managed and distributed by professionals. Ensure that the communication flows both ways. Let your heirs ask questions and seek your advice in how to handle what may be a large sum for them.
We have spent many years together building up your investment assets. The above are just a few of the actions you can take to preserve and pass along your legacy.
Visit our website at https://www.regardingyourmoney.com/learning_center/research/ for many detailed articles on estate planning.
Please feel free to call (215-836-4880) or email the office (ellend@regardingyourmoney.com) to set up an appointment to discuss any financial questions you may have.
Sources: US News & World Report, Kiplinger, Bank of America, AARP, Fast Company, Bankrate.com, Vanguard