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The Great Wealth Transfer: Everything You Should Know

July 21, 2021

According to research findings by the Cerulli Associates, up to 45 million households in the United States will enjoy a transfer of over 68 million in the next 25 years. Will your household be amongst the statistics?

This will be considered the greatest wealth transfer historically.

As wealth transfer happens in circumstances like death or incapacitation, it marks a time when many individuals are starting to live off their investments when preparing for the final years of their life.

For baby boomers, this period often includes estate planning so as to reduce their tax burden or the preparation of financial years that are yet to come. This directly shifts the supply and demand of a number of assets.

Here are the important things that all families should know as they gear up for this incredible wealth transfer:

Millennials are set to inherit millions of dollars

Millennials are on the receiving end of the great wealth transfer. It is estimated that they hold up to $6 trillion worth of real estate equity today. A majority of them are inheriting homes from their parents’ equity.

The good news is that through the right expert advice, the tax burden that is involved in making these transfers becomes bearable. Needless to say, inheriting property is always a stepping stone to future wealth.

Levy hikes are expected

President Joe Biden has called for the imposition of levy taxes on the wealthy including the raising of tax rates, as well as taxing the property that is inherited in case of death, excluding the initial one million dollars worth of gains.

Granted, the future of the president’s agenda may not be clear at the moment, financial experts foretell higher tax rates through the new legislation.

Smaller inheritance for retirement account beneficiaries will be the norm

While the Secure Act of 2019 allowed non-spouses to “stretch” retirement account withdrawals over a lifetime, the new law requires heirs like children and adults to empty their inherited retirement accounts within a 10-year period.

However, these withdrawals may account for a larger tax bill. But not all hope is lost here. To avoid higher tax bills, the account owner will pay a low bargain base mate rate to receive funds that do not incur taxes. This way, they will be able to keep as much of the money as possible.

Life insurance transfer will gain momentum

Individuals with large tax balances can also consider their life insurance as a way to transfer wealth. Account owners may not only withdraw money to transfer wealth but also use the proceeds for a life insurance policy.

Heirs to the account will receive up to four times tax-free money that is paid in. While the cost of life insurance is dependent upon factors like gender, age and location.

As such, a financial advisor will bring together projections and quotes so as to come up with the kind of investment that makes the most sense.

Gifting strategies will change

Although there are those who transfer millions without incurring federal taxes if they make more than one transfer they will be subjected to up to 40% worth of taxes.

As such, it is important to be aware of all gift-giving strategies by going through the right options with an estate planning attorney.

At IM Wealth Partners, we have an incredible team. We're here to answer your questions about the great wealth transfer. Contact us today.