How to Prepare for the Great Generational Wealth Transfer

An estimated $84 trillion in wealth is expected to transfer from the Baby Boomer generation to their children and grandchildren over the next couple of decades. It’s a staggering amount that represents one of the greatest intergenerational wealth transfers in history.

While inheriting wealth can be a wonderful opportunity, it also comes with great responsibility. Without careful planning and strategy, much of that $84 trillion could evaporate due to taxes, poor money management, or lack of preparation. That’s why, at Hammond Law Group, we believe it’s crucial for both the transferors and recipients to get their affairs in order well before this massive wealth transfer occurs.

In this guide, we’ll walk you through key strategies to prepare for an efficient, tax-optimized transfer of generational wealth. By being proactive, you can ensure your family’s hard-earned assets are preserved, and your legacy is passed down according to your wishes.

Review and Align Your Assets

Before any wealth can be efficiently transferred, you first need to take a comprehensive inventory of all your assets and accounts.

This includes:

• Investment and retirement portfolios
• Real estate holdings
• Business interests
• Valuable collectibles
• Insurance policies, and more

We often find our clients have assets scattered across multiple institutions that need consolidation.

During this review process, we’ll update beneficiary designations, revise ownership titles, and assess your estate’s overall liquidity position. You don’t want your heirs stuck paying estate taxes out of pocket while they wait for illiquid assets like real estate or businesses to be sold. Proper liquidity and cash flow planning is essential.

We’ll also conduct a thorough audit of any existing life insurance policies and advocate for adjustments where needed. Life insurance can serve the dual purposes of providing a tax-free pool of cash to pay estate taxes while also leaving a lasting inheritance.

Create an Estate Plan That Preserves Generational Wealth

The foundation of any solid wealth transfer strategy starts with an updated, comprehensive estate plan.

At a minimum, you’ll want an up-to-date will, trust, and power of attorney document.

1. A will outlines how you want your assets distributed after you’re gone. However, a will alone may not be enough, especially for larger estates, since it does not provide asset protection.
2. By funding a trust with your assets, your estate can avoid the costly and time-consuming probate process after you pass away. Your beneficiaries receive their inheritance much more quickly and privately.
3. A durable power of attorney designates someone you trust to make financial and health care decisions for you if you become incapacitated.

Depending on the size and complexity of the assets of your estate, you may need to leverage different types of estate planning tools and strategies.

At Hammond Law Group, we work with you to implement safeguards that keep your assets in your family’s hands and prevent wasteful spending by heirs.

Our attorneys are well-versed in tools like spendthrift trusts that allow you to stipulate how and when your wealth is distributed. This ensures your legacy lives on exactly as you envisioned while providing protection against creditors, divorces, or ill-advised money management. We’ll be your partner in securing your family’s financial future for generations to come.

Implement Tax-Efficient Wealth Transfer Strategies

Taxes are one of the biggest threats to preserving generational wealth. The federal government imposes a 40% estate tax on assets exceeding $13.61 million for an individual or $27.22 million for a married couple. On top of that, many states also levy their own inheritance or estate taxes which can further erode your wealth.

The good news is that with careful tax planning, you can significantly reduce or even eliminate your estate tax burden through strategies like:

• Using your lifetime gift tax exemption through annual exclusions of up to $18,000 per recipient, per year. This allows you to slowly transfer wealth tax-free.
• Setting up certain irrevocable trusts like Intentionally Defective Grantor Trusts (IDGTs), Grantor Retained Annuity Trusts (GRATs), or Spousal Lifetime Access Trusts (SLATs) to freeze the value of assets and remove future appreciation from your taxable estate.
• Creating Charitable Remainder Trusts that allow you to receive income from assets during your lifetime, with the remainder going to charity and generating an upfront tax deduction.
• Using Family Limited Partnerships and taking advantage of valuation discounts for lack of control and marketability.

These are just some of the advanced tax planning tools in our toolbox. By working closely with our team, we can develop a comprehensive, tax-efficient wealth transfer plan customized for your specific assets and family dynamics.

Tools for Productive Family Wealth Discussions

Speaking of family dynamics, it’s critical to get your loved ones involved early in the wealth transfer process through open and honest communication. We’ve created resources like guided discussion worksheets to help facilitate these often difficult conversations in a productive manner.

The goal is to align everyone’s expectations, share your wishes for how you’d like your wealth used, and define the core values you want to impart. It’s also an opportunity to educate the next generation on financial literacy and the responsibilities that come with inheriting wealth.

For complex, multi-generational scenarios, we may even recommend establishing a family office or private wealth advisory team. This provides professional oversight, governance, and a unified vision for managing the family’s assets over multiple generations.

Wealth Management for Beneficiaries

Of course, the wealth transfer process doesn’t end once the assets change hands. At Hammond Law Group, we work closely with financial advisors and wealth managers to ensure a comprehensive plan for the beneficiaries as well.

This could involve setting up properly structured investment accounts or trusts to receive an inheritance in the most tax-efficient manner possible. We’ll advise on asset allocation, risk management, and scenario planning for recipients who may receive lump sum windfalls versus those expecting income streams over time.

Our role is to provide guidance on protecting, growing, and perpetuating that new wealth for generations to come. We aim to instill the skills and disciplines needed for responsible stewardship of a financial legacy.

Transfer Wealth Seamlessly With Hammond Law Group

The great transfer of generational wealth is coming – are you prepared? By taking a proactive, strategic approach, you can navigate this transition smoothly while minimizing taxes and ensuring your family’s values live on.

But the time to start planning is now, well before this $84 trillion tsunami of wealth begins shifting. Don’t go it alone – our experienced team at Hammond Law Group has the legal and financial acumen to develop a customized wealth transfer strategy that checks every box.

If you’re concerned about transitioning your assets in a tax-efficient manner and preserving your legacy, we encourage you to contact Hammond Law Group today. Let’s have a conversation about securing your family’s financial future for generations to come.