The “Great Wealth Transfer” will see boomers transfer an estimated $68.4 trillion in financial and nonfinancial assets in North America alone, averaging $1.5 trillion to $3 trillion transferring every five years through 2050. Commentary surrounding the millennial inheritance of wealth abounds, but the interim wealth transfer as well as the effect of that interim transfer on the women who are transferring the wealth should be taking center stage.
According to the Social Security actuarial life expectancy tables, women outlive men by three to five years on average. Therefore, it can be presumed that single or married women or women with partners in the boomer generation will have custody of the Great Wealth Transfer before it is ever transferred to the millennial generation.
Here are the top five wealth transfer topics to keep in mind when preparing for the unique aspects of wealth stewardship.
Know Your Worth
First, a holistic understanding of net worth and cash flow needs is critical. Although personal financial statements may be beneficial to some while administratively unnecessary to others, the exercise of documenting all assets and their value is crucial. Detailing the assets, value of assets, or titling of assets helps ensure transparency and allows for a reduced administrative burden during wealth transition. Also, a wealth snapshot may shed some light on abilities to consolidate financial and/or nonfinancial accounts, allowing for reduced administrative burdens upon the transfer of wealth.
Next, key documents should be identified. Review our BKD Thoughtware® article “Four Reasons Why You Need an Estate Plan Now” if you have not yet executed an estate plan. Safe storage of not only certified wills and trusts but also deeds, insurance policies, and other legal documents should be reviewed. Key contacts such as legal and financial counsel should be documented. In addition, if specific transfer of personal effects is desired, e.g., a pocket watch to go to a particular nephew, consider a picture catalog with notes signed by the taxpayer to help ensure that wishes are understood.
A second aspect in reviewing your financial picture is projecting and understanding your cash flow needs. It is not uncommon in a relationship for one partner to take on a leading role in the family’s financial responsibility. This can lead to a hazy understanding of the financial picture for the surviving spouse or significant other. Walking through monthly and annual income and expenditures, as well as bucketing expenses into needs, wants, and wishes, can assist you in modeling the wealth you may have available for gifting or philanthropic wishes as well as what you will need for your life. BKD Private Client Services is available to assist you with this calculation using financial planning software that takes the above variables into account and creating a Monte Carlo simulation. This simulation runs 1,000 different models to help establish guardrails for spending as one readjusts their financial picture. By knowing one’s worth in anticipation of or after a life event, one can regain a sense of confidence and comfortability.
Have You Dotted the I’s & Crossed the T’s?
If you have undertaken estate planning, you may remember legal counsel giving you an action item list as you left the final signing. The parting words from that meeting may have been, “Make sure you title all of your property as we have discussed.” Or perhaps you have yet to undertake an estate plan with legal counsel and have not officially reviewed the titling of all of your assets.
After completion of step one above, you will have an outlined picture of your overall net worth and assets. Your next step should involve a review of the legal titling of each asset.
How is your house titled? How are investment properties titled? Who are your listed beneficiaries on your financial accounts? Assets titled as joint with right of survivorship or as joint tenancy assets should be identified to confirm your understanding regarding the legal titling’s effect on asset transfer. If you are uncomfortable undertaking this step alone, please contact a BKD Trusted Advisor™ who can assist you with a review of your accounts.
In addition, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act)—enacted as part of the Further Consolidated Appropriations Act, 2020 on December 20, 2019—adjusted the laws surrounding beneficiary terms and required minimum distributions for retirement accounts. Review our Thoughtware article “SECURE Act – A Closer Look” for more information.
- Understanding the Road Ahead
No matter your situation (single, married, or partners), understanding what will happen upon your significant other’s or your own passing can assist you in being prepared. All too often, the spouse of a decedent states that although they had an estate plan, they didn’t understand the income tax or administrative ramifications of a loved one’s passing.
This is a call to action. Modeling, with accounting and legal counsel, during life of what will happen based on the plan that is in place is instrumental to avoiding unwanted surprises. The conversation during life allows for a unification and transfer of knowledge and comfort to occur with all parties involved.
- What Is Your Legacy?
After garnering a full understanding of a personal financial statement and cash flow needs, the conversation can turn to stewardship of wealth. Whether in the final income-producing years before retirement or in transition to retirement, an understanding of expected net worth upon your or your loved one’s passing can jump-start conversations around lifetime use of assets. This conversation can often lead in two directions: lifetime gifting and philanthropic wish fulfillment.
Regarding lifetime gifting, review the Thoughtware article “To Gift or Not to Gift – The Current Dilemma” to learn more about using your lifetime exemption.
Regarding philanthropic stewardship, the conversation can center around philanthropy during life versus a legacy of philanthropy that carries on after your passing.
For current philanthropic wishes, the Coronavirus Aid, Relief, and Economic Security Act included two temporary provisions related to the tax deduction for charitable contributions to provide relief and encourage giving. Both provisions were recently extended into 2021. The first provision allows an above-the-line deduction of up to $300 ($600 for married filing jointly in 2021) for taxpayers who don’t itemize deductions on their tax returns. The deduction is only allowed for cash contributions made to certain qualifying public charities. A second provision temporarily allows taxpayers who itemize their deductions in 2020 or 2021 to elect to increase the charitable cash contribution adjusted gross income (AGI) limitation from 60 percent to 100 percent. If more than 100 percent of a taxpayer’s AGI is contributed, excess contributions may be carried forward to future years. Learn more by viewing this recent Thoughtware article and webinar archive.
Other advanced charitable planning techniques such as charitable lifetime access trusts and charitable remainder trusts can be used as part of holistic, long-term philanthropic estate planning strategies.
- Wisdom & Growing the Next Generation
After undertaking the aforementioned personal financial journey, you are now poised to pass along financial wisdom. First, consider starting with peer family members. Discuss what you have undertaken and help them take a similar journey. Although the burden of administrative blunders can fall on immediate family, the effect may be felt from the passing of parents, siblings, and cousins who aren’t as prepared.
Next, consider beginning the financial journey with the next generation by determining if your children are prepared to inherit your wealth. Don’t put on the breaks at this step. Assuming your kids aren’t old enough is just one of many roadblocks that can stop the transfer of financial intelligence to the next generation. Studies have shown kids can grasp basic money concepts by age three—and by age seven, many of their money habits are already set. The discussion on wealth transfer can be undertaken over time, but the journey should begin now. BKD Private Client Services is happy to host family roundtables to jump-start the financial education of family members.
Financial wealth and the knowledge surrounding its stewardship is not something gained overnight, but the journey of undertaking it should be embarked upon by women who are taking center stage in conversations surrounding the Great Wealth Transfer.
For more information on personal financial statements, cash flow projections, BKD Private Client Services, or estate planning consultations, reach out to your BKD Trusted Advisor or submit the Contact Us form below.
BKD Private Client Services may include investment advisory services provided by BKD Wealth Advisors, LLC, an SEC-registered investment adviser and/or accounting, tax, and related solutions provided by BKD, LLP.