By Jeffrey J. Buonforte
Get ready. One of the largest transfers of wealth in U.S. history is on the horizon. During the next 30 to 40 years, baby boomers are expected to transfer $30 trillion to their children—and that is above and beyond the $12 trillion that they are in process of receiving from their own parents.1
As a CERTIFIED FINANCIAL PLANNER™, I’ve been talking with our baby boomer clients about how to transfer this wealth, and with their adult children about how to plan to receive it.
To enhance the opportunity for a smooth transfer of financial and non-financial assets, the first step is to include estate planning as part of any comprehensive financial plan
. With estate planning, you want to maximize your assets, minimize taxes and other expenses, and prepare for a seamless transition to your family, charities and other recipients. You can plan to transfer wealth both while you’re alive and after you pass away. This should include a transfer-of-wealth plan that you can communicate to your heirs.
It’s never too early to begin planning. We will discuss this topic often in our blogs and in our video series, but here are some ways to get started.
- Take inventory of your assets. Document them for your beneficiaries. Assets include: investments, retirement savings, insurance policies, real estate and business interests. Review them on a regular basis.
- Prepare and maintain an up-to-date will. Declare your financial distributions in a will, but know the laws that govern your assets. Your will may not apply to assets such as tax-deferred retirement accounts and life insurance policies. Check with the financial institution that holds the asset to determine the rules that apply.
- Minimize estate taxes. Understand and periodically review the federal estate tax exemption – the amount you may leave to heirs free of federal tax. It is set permanently at $5 million, but indexed for inflation. (Note that on a state level, in New Jersey, you have to pay an estate tax if your estate is valued at more than $675,0002).
- Consider a trust. Trusts are not just for the super wealthy. Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed. For example, money in a trust may be held until the recipient is of a certain age, or paid out on an annual basis for a certain number of years.
- Review your life insurance policies. When was the last time you did this? It is important to review your policies regularly with a financial professional, to ensure that you are in a strong position to provide this tax-free benefit to your heirs. In this way, you can plan to have your beneficiaries receive the amount they’d need to pay the taxes.3See our blog that explains the two types of life insurance you can consider – term life and permanent life.
- Spread the wealth. If you leave your entire estate to your surviving spouse, chances are that he or she would then leave it to your children. The full amount might carry a greater tax burden than smaller amounts distributed over the years or among family members.
- Consider making annual gifts to your children. Make gifts below the annual exclusion amount, so they are tax-free. The annual gifting exclusion to a non-spouse is currently $14,000. You may give up to $28,000 a year if you’re married and giving the gift with your spouse. The IRS provides guidelines for taxable gifts.
- Donate to a charitable gift fund or community foundation. Charitable giving is another way to minimize estate taxes. Tax-deductible donations may be made to charitable gift funds or community foundations. Charitable gift funds are portfolios of nonprofit philanthropic funds, usually organized around making a positive difference in a region or around a cause. Community foundations are tax-exempt nonprofits that pool donations for a charitable interest.
- Make your wealth transfer plan dynamic. It should be able to be adjusted for evolving tax, estate and gifting laws.
Most importantly, communicate with your beneficiaries about your intentions to eliminate any confusion. When you plan how you will transfer wealth to the next generation, you help ensure your money can make a real impact where you’d like. And, your beneficiaries will be prepared to receive it and know how to maintain it.
We also encourage you to work with an estate planning team: an estate planning attorney, a tax professional and financial advisor who know the intricacies of the tax and financial laws and restrictions. For advice on how to choose a financial advisor, see our video
For more information, visit LakelandBank.com or contact me at firstname.lastname@example.org
*Securities are offered through Essex National Securities, Inc., member FINRA & SIPC. Insurance products are offered through Essex National Insurance Agency, Inc. Neither are affiliated with Lakeland Bank.
Products are not guaranteed by the bank, not FDIC insured, not a deposit, not insured by any federal government agency, and may lose value including loss of principal.