Plan Ahead Before Transferring Wealth to Heirs

June 4, 2021
Plan Ahead Before Transferring Wealth to Heirs

Baby boomers are expected to transfer an estimated $30 to $70 trillion1 of wealth to children and grandchildren as well as charities. Are their loved ones ready to manage a potential windfall? We offer advice on making a wealth transfer plan.

Q: How well do Millennials and Gen-Xers understand finances?

A: Only 11% of Millennials displayed a “relatively high” level of financial literacy, with another 28% of the group conveying a “very low” financial literacy rate, while Gen Xers struggled with spending and saving, according to a TIAA Institute study.2

Q: How should I approach communicating with family members about wealth?

A: While it can be uncomfortable to discuss finances with family members, it’s much better to clearly express your wishes for the distribution of your wealth. That means being as candid as possible with loved ones. Your wealth advisor can assist you by being present as a neutral third party to guide these often emotional and sensitive conversations around inheritance.

Part of that discussion includes communicating your family’s values. You can talk about how your family has accumulated and used wealth, including for charitable donations. This helps tie meaning to the wealth and may create a greater sense of personal responsibility for loved ones inheriting it.

Q: What steps should I take to plan for transferring my wealth?

As part of the communication and mentoring effort with your heirs, you might consider delegating small amounts of wealth for them to manage along the way to allow for mistakes with small pools of investments or assets before handing over a large estate that they may not be prepared to receive.

And assuming you have enough to cover your own retirement, including long-term health care expenses, you may choose to give your heirs gifts, while many can use it, taking advantage of your lifetime gift tax exemption while moving money out of your estate. To avoid the trap of being perceived as a bank by family members, you may want to specify specific use for the gifts, such as to pay for college tuition or for a deposit on a property.

You might also ask your heirs to join you when you meet with your wealth team, including tax professionals, so they can understand the tax-efficient way in which you’ve likely structured your assets so that those strategies can continue when your heirs take the reins at some point. And meeting with your advisor together can give family members a broad overview of your wealth management plan including investments, insurance, estate plan documents, trusts and real estate.

In addition, you’ll want to coordinate with your wealth team, including an estate planning attorney, to help ensure your will and trusts are up to date and beneficiaries are current. If you’ve remarried or have had any other life event, such as divorce, those events may trigger a need to change your beneficiaries. When you update your trusts, you’ll want to make sure that your assets are titled properly and your wishes for how you want your assets distributed and to whom are defined.

As far as appreciated assets, such as stocks, you might raise retirement cash by selling other securities where there has been little or no appreciation. That may permit you to retain the shares and leave them to your heir. As an example, at your death, your heir might note that the shares were worth $50,000 that day. That $50,000 becomes the new basis (cost for tax purposes) in those shares. If your heir sells them for $50,000, he or she will owe no capital gains tax. All of the appreciation in those shares during your lifetime will escape tax altogether.3

Q: What should my children or grandchildren do to prepare?

A: If you’ve had candid conversations with loved ones, they should prepare for inheriting wealth and work with a wealth advisor on a plan to make the best use of the money with a goal of increasing their own retirement savings.

It may also be a good idea for this younger generation to seek financial advice and retirement planning assistance from their employers that have a fiduciary responsibility to offer them access to financial advice and management. And, as stated above, consider starting your heirs out with real estate or other assets now, while you can mentor and coach them on how to manage those assets.


1“The Greatest Wealth Transfer: What boomers and Their Families Need to Know”

2“Understanding the State of Millennial Personal Finances”

3“Preparing Your Heirs for Their Inheritance”

This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

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