The Great Wealth Transfer: Strategies for Giving Your Heirs the Biggest Bang for Your Buck

BY: Jeff Supple


The Baby Boomer generation has made it a priority to leave behind a legacy for their heirs. As a result, aging adults are looking for ways to secure a nest egg for their loved ones. In fact, “The Great Wealth Transfer” over the next few decades will see an estimated $68 trillion passed down from Baby Boomers to the next generation and beyond.

While leaving an inheritance is not a new concept, we are seeing some trends from Baby Boomers that distinguish them from their parents and the giving habits of previous generations. These creative strategies enable the gifter to do all they can to give a little extra and enjoy the process along the way.

Lifetime Gifts

One popular trend is to wait and see how retirement is going, and then give a portion of money during the gifter’s lifetime, so that they can enjoy watching his or her heirs benefit from the unexpected lump sum. 

Baby Boomers seem to have an attitude along the lines of: “I’d rather help the kids out now when they need it more and I can see them enjoy it.” 

Here’s how it works: once there is a comfort level that there is more than enough to fund one's retirement lifestyle (usually late 60s or early 70s), people will look for ways to help children and grandchildren.

Individual cash gifts are the most prevalent. Most people adhere to the maximum $16,000 (up from $15,000 in 2021) per individual gift tax exclusion amount. Others wanting to exceed those limits can do so by covering tuition or medical expenses if there is direct payment to the learning institution or health care provider.

Tax-Aware Planning

Although there is no specific Federal or Wisconsin inheritance tax, estates may be subject to the estate tax. In addition, some of the assets received may be subject to taxation, such as IRAs, deferred annuities, and more.

To shield their beneficiaries from having to pay taxes on any gift and to try to increase the impact of that gift, many Baby Boomers are adopting strategies such as converting IRAs to ROTH IRAs and paying the tax themselves up front because inherited ROTH IRAs are not subject to tax.

Charitable Giving

The Tax Reconciliation Act of 2017 essentially doubled the standard deduction. That means fewer people can itemize their deductions, including charitable contributions. 

As a result, we are seeing a dramatic increase in the use of QCDs (Qualified Charitable Distributions), which allow individuals subject to Required Minimum Distributions from their IRAs to make their distributions directly to a charity or non-profit. Charitable distributions are not included in taxable income, so they work as a de facto deduction.

Spreading the Joy

With an attitude of generosity and the means to make it happen, Baby Boomers are equipped to spread the joy by not only leaving behind a legacy, but by doing it in a way that provides the biggest possible impact and enables you to participate in the fun while you are still alive. 

If you are interested in learning more about ways to make gifts now and down the road, talk to your wealth manager about strategies to maximize the benefit.

Author:

Jeff Supple

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