The Great Wealth Transfer Has Begun
As baby boomers retire, estate planning has never been more important
When I’m asked about the next big trend in wealth management, I think most expect a technology-centric response, like “artificial intelligence” or “cryptocurrency.” The real answer is much more prosaic by comparison – but nonetheless will entail a truly seismic shift in how clients approach managing their wealth.
Until recently, the baby boom generation was the largest living adult generation in history, peaking at just shy of 80 million people. They have also been the most prosperous, controlling 56% of the country’s $140 trillion in wealth. With the youngest baby boomers passing age 65 by the end of the decade, we are beginning to witness an unprecedented amount of money in motion as the wealth from this generation transfers to the next.
Adding an interesting wrinkle and heightened sense of urgency to this phenomenon is the sunset of certain estate tax provisions from 2017’s Tax Cuts and Jobs Act. Among other things, this legislation increased the gift and estate tax exclusion amount – that is, how much you can transfer, in life or at death, without incurring gift or estate tax – from $5 million per individual in 2017 to an inflation-adjusted $12.92 million today. However, after 2025, that exclusion amount reverts to levels more in line with 2017, potentially shutting the door on this opportunity.
When done well, wealth transfer is planned for and executed over several years so people can move their money in the most frictionless and tax-efficient way possible. Especially for families with sophisticated wealth needs, it can involve many moving parts (such as trust services, tax and estate planning, business sale or succession-planning) and highly advanced gifting strategies.
For my fellow baby boomers, I would advise you: The time to start making plans with your advisor is now.
