Strategies to navigate the $68 trillion ‘great wealth transfer,’ according to top-ranked advisors

Between Bill Gates’ pledge to give “virtually all” of his wealth away and Patagonia founder Yvon Chouinard’s recent decision to donate his entire company to fight climate change, it’s clear views of inherited wealth have changed.

Those high-profile pledges are happening as part of the greatest generational wealth transfer in history, with baby boomers set to pass to their children more than $68 trillion.

“It’s a generation that has accumulated a greater percentage of wealth that any other generation ever has,” said Mark Mirsberger, a certified public accountant and CEO of Dana Investment Advisors, No. 2 on this year’s CNBC FA 100 list.

“It’s a great opportunity. If they don’t plan for it, they don’t have to worry about it, the government will do it for them,” he said referring to how state intestacy laws will govern how assets are distributed without a will in place.

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Here are four key considerations to help families prepare, according to CNBC’s top-ranked financial advisors. 

1. Life expectancy

Even though the Covid-19 pandemic drove down average life expectancies in the U.S., people have been living longer, and that will determine your estate plan.

You might need your money longer than you think,” Mirsberger said.

“Anyone that is 70 years old has a greater likelihood of making it to 90,” he added. “After that, understand that your children and grandchildren may live even longer.”

“In the transactions I’m handling, the kids are closer to my age — they might be in their 50s or 60s,” said Rick Keller, a certified financial planner and the chairman of First Foundation Advisors, which is ranked No. 33 on the CNBC FA 100 list.

That makes it even more imperative to start working with the next generation earlier on, he added. “Getting to know these kids and their needs is very important,” Keller said.

2. Family legacy

The first hurdle is often bringing generations together to discuss their family legacy, advisors say.

“A lot of wealthy parents don’t show their kids what’s there,” said Alison Berman, president and CEO of Palisade Capital Management, which placed No. 56 on the FA 100 list. However, “you need transparency to plan,” she said. “We’ve been helping a lot of families navigate that.”

“One of the most important things is to make sure the next generation is comfortable handling the wealth they are about to inherit,” Keller said. “Parents have gotten used to managing their wealth over 20, 30 or 40 years; kids have less than a year.”

Sometimes not enough time is spent on the soft side of these family dynamics as opposed to just the numbers.
Rick Keller
chairman of First Foundation Advisors

For starters, “we try to get them thinking about what it means to be well off in this country,” he said. “Sometimes not enough time is spent on the soft side of these family dynamics as opposed to just the numbers.”

“Financial literacy is a huge part of this wealth transfer,” Mirsberger said. “You need to provide a lifetime of education.”

He added: “The next challenge is how you engage that next generation. You may not be able to connect with them.”

That means finding various ways to work with your heirs and get them to work with you. “That requires advisors to be a little more creative,” Mirsberger added.

3. Charitable intent

Not only do children and grandchildren operate differently than their parents when it comes to the ways they communicate and their technical savvy, but their priorities may be different, as well.

“There’s much more activism in the younger generation,” Berman said. They’re focused on issues like climate change, social justice and companies that are environmentally and socially conscious, she said.

They want to use their assets as an agent of change.
Alison Berman
president and CEO of Palisades Capital Management

When it comes to their investment strategy, they tend to be more interested in broader trends rather than individual stocks, she also noted. “They want to use their assets as an agent of change.” 

To maximize a charitable plan, there are certain strategies that can help, such as creating a charitable remainder trust or charitable lead trust, which allow you to donate to the organizations of your choice, while providing a tax break to your heirs. 

4. Tax implications

Of course, any money that will be passed down must be subject to proper estate and tax planning, using tools like trusts and annual exclusion or lifetime exemption gifts, according to Will Williams, president and CEO of David Vaughan Investments, which ranks No. 40 on the FA 100 list.

The goal is to lessen the future tax liability and spare heirs much larger bills.

For the time being, taxpayers can gift as much as $12.06 million during their lifetimes without an up to 40% levy. That total is above and beyond the annual gift-tax exclusion, which allows you to make an unlimited number of gifts of up to a certain amount (in 2022, it’s $16,000) per person each year without incurring any taxes.

Those who are reluctant to make outright gifts could consider transferring assets into an irrevocable trust. One type, a grantor retained annuity trust, or GRAT, provides for annual payments to the parent for a fixed period of time before the assets go to the children or grandchildren as a tax-free gift. In fact, some of the nation’s richest people have leveraged this strategy. (There are also spousal lifetime access trusts, or SLATs, which allow married couples to create an irrevocable trust for the benefit of one another, while maintaining access to the assets.)

“The key is making sure you understand what it means for the next generation,” Williams said, as well as which strategy will work best for you. “It’s not a one-size-fits-all.”

Sophie Tremblay

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