The Great Wealth Transfer is already underway, and experts predict that by 2045, an estimated $84 trillion in assets will be passed down to Gen X and millennials, effectively changing the economy as we know it. “It’s the biggest wealth transfer in history,” says Aaron Simpson, senior vice president at Moran Wealth Management in Naples.
With the extra assets, some millennials may find homeownership more attainable, while Gen Xers can build retirement savings. Both generations will have the power to change the course of consumerism based on their habits of experiential spending and investing in sustainable companies with strong stances. A Euclid (now WeWork) study shows that 52% of millennials and 48% of Gen Xers say they want retailers to align with their values, compared with 35% of baby boomers.
But with big opportunity comes big responsibility, and inheriting money comes with many complex feelings, such as losing a loved one, social and family pressure and navigating new economic waters. We asked financial professionals how people can ease anxiety around receiving inheritances and make smart choices when leaving assets to family members.
“We always recommend for families to come together before a death and have an open conversation,” says Mia Hyatt, vice president and banker at J.P. Morgan Private Bank. “Talk as a family about the legacy and intent of the money, and begin planning for the wealth transfer well in advance of the death so when the transfer actually takes place, the person inheriting the money now understands what the expectations are and is prepared to execute on the discussions.”
A financial planner is one key player in a circle of professionals who can put a plan in place for managing wealth. Top experts should understand multigenerational and individual needs and values, be able to break down complex concepts and be personable.
“When you’re talking to an adviser, you want to have multiple meetings with them. Find someone who listens to you, who is not talking at you but to you,” Hyatt says. “Put a team in place that respects you, listens to your opinions and takes a step back to make sure you understand what they’re saying.”
Gifting money while still alive can have tax and other advantages, including seeing family members enjoy wealth while the donor is still living.
“Annual gifting, especially around the holidays, is good to run by a professional, like an estate and tax planning attorney, to know the most tax-efficient methods and law,” Simpson says.
An individual can give up to the annual exclusion amount of $17,000 for each beneficiary without using the estate and gift tax basic exclusion amount of $12.92 million as of 2023. So, if married, each spouse can give that amount separately to their children, resulting in each child receiving $34,000.
“After 2025 and the sunset of the current laws put in place by the Tax Cuts and Jobs Act, the basic exclusion amount will revert to $5 million, adjusted for inflation, unless Congress agrees to something different,” says John Paul “J.P.” Bratcher, shareholder and private wealth attorney in the GrayRobinson Private Client Services Practice Section.
“Most people do not factor in inflation when it comes to their overall retirement planning, and the significant erosion of their money over time as inflation rises,” Simpson says.
Individuals need to find investment options that keep up with or outpace inflation, he adds: “It’s going to be critical for them to have a well-diversified portfolio.” Those investments can look like properly managed stocks and real estate. “CDs (certificates of deposit) and keeping money in a savings account will not keep pace with inflation,” Simpson says. “If we have 5% or 6% inflation and your assets are not growing with that each year, you’re actually losing money.”