Between Bill Gates’ promise to give away “almost all” of his possessions and Patagonia founder Yvon Chouinard’s recent decision to donate his entire company to fighting climate change, it’s clear that views on inherited wealth have changed.
At the same time, the largest generational transfer of wealth in history is underway, with baby boomers set to pass on to their children more than $68 trillion.
Mark Mirsberger, a public accountant and CEO of Dana Investment Advisors2nd place 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 the state’s intrusive laws would be. Adjust the way assets are distributed without the will in place.
Here are four key considerations to help families prepare, according to CNBC’s top-rated financial advisors.
1. Longevity
While the Covid pandemic has lowered average life expectations in the US, people have lived longer and that will dictate your legacy plans.
“You may need money longer than you think,” says Mirsberger.
He added: “Anyone 70 years old is likely to be as high as 90 years old. “Then understand that your children and grandchildren can live even longer.”
Rick Keller, a certified financial planner and president of First Organization Advisorranked 33rd on the CNBC FA 100 list.
That makes it all the more urgent to start working with the next generation earlier, he added. “Getting acquainted with these children and their needs is very important,” Keller said.
2. Family legacy
The first hurdle often brings generations together to discuss their family legacy, the advisers said.
Alison Berman, president and chief executive officer of Palisade Capital Management, ranked 56th on the FA 100 list. However, “you need transparency to plan,” she said. “We’ve helped so many families navigate that.”
“One of the most important things is to make sure the next generation feels comfortable handling the fortune they are about to inherit,” says Keller. “Parents have been used to managing their assets for more than 20, 30 or 40 years; children have less than a year.”
Sometimes there isn’t enough time spent on the weak side of these family dynamics instead of just the numbers.
Rick Keller
president of First Foundation Advisors
For starters, “we try to get them thinking about what it means to be rich in this country,” he says. “Sometimes there isn’t enough time spent on the weak side of these family dynamics instead of just the numbers.”
Mirsberger also added: “Financial literacy is a huge part of this asset transfer process. “You need to provide lifelong education.
“The next challenge is how you engage the next generation,” he said. “If they can’t access it on their phone, you might not be able to connect to them.
“That requires advisors to be a little more creative,” added Mirsberger.
3. Charitable intentions
Not only do children and grandchildren operate differently from parents in terms of their communication and technical understanding, but their priorities may also differ.
“There is more activism in the younger generation,” says Berman. They focus on issues like climate change, social justice and environmentally and socially conscious companiesshe speaks.
They want to use their assets as an agent of change.
Allison Berman
President and CEO of Palisades Capital Management
When it comes to their investment strategies, they tend to be 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 strategy that could help, such as creating a residual charity or charitable trust fund, allowing you to donate to organizations of your choice, while also providing tax breaks for your heirs. friend.
4. Impact of taxes
Of course, any money that will be transferred is subject to proper tax and wealth planning, using tools such as trusts and gifts with annual exclusions or lifetime exemptions, according to Will Williams, president and chief executive officer of David Vaughan Investments40th on the FA 100 list.
The aim is to reduce future tax liability and save heirs much larger bills.
Currently, taxpayers can donate $12.06 million over their lifetime without paying a tax of up to 40%. That total is above and beyond the annual gift tax exclusion, allowing you to give an unlimited number of gifts up to a certain amount ($16,000 in 2022) per person per year without are not subject to any taxes.
Those who don’t want to give a gift right away can consider turning the assets into an irrevocable trust. One kind, one grantor of retained annuity trust, or GRAT, provides annual payments to parents for a fixed period of time before the property is given to a child or grandchild as a tax-free gift. In fact, some richest people in the country took advantage of this strategy. (There are also spouses’ lifetime access trusts, or SLATs, that allow couples to create an irrevocable trust for the benefit of each other, while still maintaining access to assets. produce.)
“It’s important to make sure you understand what that means for the next generation, as well as what strategy will work best for you,” Williams said. “It’s not one size fits all.”
