How to navigate the ‘great wealth transfer,’ according to top advisors

In between Bill Gates’ promise to give away ‘virtually his entire fortune’ and the recent decision by Patagonia founder Yvon Chouinard to donate his entire company to the fight against climate change, views on inherited wealth have changed.

At the same time, the largest intergenerational wealth transfer in history is taking place, with baby boomers projected to pass on more than $68 trillion to their children.

“It’s a generation that has accumulated a greater percentage of wealth than any other generation,” said Mark Mirsberger, chartered accountant and CEO of Dana Investment Advisors, #2 on this year’s CNBC FA 100 list.

“It’s a great opportunity. If they don’t plan it, they don’t have to worry, the government will do it for them,” he said, referring to how the state’s intestacy laws govern how assets are distributed without a being in place.

Here are four key considerations to help families prepare, according to CNBC’s senior financial advisors.

Although the Covid pandemic has reduced average life expectancy in the US, people are living longer and that will drive your estate plan.

“Maybe you need your money longer than you think,” said Mirsberger.

“Anyone who is 70 has a greater chance of making it to 90,” he added. “After that, you understand that your children and grandchildren can live longer.”

“On the deals I handle, the kids are closer to my age — they could be in their 50s or 60s,” said Rick Keller, a certified financial planner and chairman of First Foundation Advisors, ranked 33rd on the CNBC FA 100 list .

That makes it all the more important to work earlier with the next generation, he added. “It’s very important to get to know these children and their needs,” Keller said.

The first hurdle is often bringing generations together to discuss their family heritage, advisers say.

“A lot of wealthy parents don’t show their kids what’s there,” said Alison Berman, president and CEO of Palisade Capital Management, which was ranked 56th on the FA 100 list. However, “you need transparency to plan,” she said. “We’ve helped a lot of families deal with it.”

“One of the most important things is to make sure that the next generation is comfortable with the wealth that they’re going to inherit,” Keller said. “Parents have become accustomed to managing their wealth for 20, 30 or 40 years; children have less than a year.”

First, “we’re trying to get them to think about what it means to be wealthy in this country,” he said. “Sometimes not enough time is spent on the soft side of this family dynamic, as opposed to just the numbers.”

“Financial literacy is a big part of this wealth transfer,” Mirsberger added. “You have to provide education for life.

“The next challenge is how you engage the next generation,” he said. “If they can’t access it on their phone, you might not be able to connect with them.

“That requires a bit more creativity from the consultants,” adds Mirsberger.

Children and grandchildren not only function differently than their parents when it comes to the way they communicate and their technical understanding, their priorities can also be different.

“There’s a lot more activism in the younger generation,” Berman said. They focus on issues such as climate change, social justice and Companies that are environmentally and socially conscious, she said.

When it comes to their investment strategy, they’re more interested in overall trends than individual stocks, she also noted. “They want to use their wealth as a means of change.”

To maximize a community service plan, there are certain strategies that can help, such as: B. Establishing a Nonprofit Remnant Trust or a Nonprofit Lead Trust, which allow you to donate to the organizations of your choice while providing your heirs with a tax break.

Of course, any money passed on must be subject to proper estate and tax planning, using instruments such as trusts and annual exclusion or lifetime release gifts, according to Will Williams, president and CEO of David Vaughan Investments, which ranks 40th on the FA 100 list.

The aim is to reduce the future tax burden and save heirs from much larger bills.

Currently, taxpayers can give away up to $12.06 million during their lifetime without a levy of up to 40%. This sum is in excess of the annual gift tax exemption, which allows you to make an unlimited number of gifts up to a certain amount ($16,000 in 2022) per person each year without incurring any taxes.

Those unwilling to give outright gifts might consider placing assets in an irrevocable trust. One type, a Grantor Retained Annuity Trust, or GRAT, provides annual payments to parents for a set period of time before the assets are given to children or grandchildren as a tax-free gift. In fact, some of the richest people in the country have taken advantage of this strategy. (There are also lifetime spousal trusts, or SLATs, which allow married couples to create an irrevocable trust for mutual benefit while maintaining access to the estate.)

“The key is to make sure you understand what it means for next-gen,” Williams said, and what strategy works best for you. “It’s not a one-size-fits-all.”