Embrace the Great Wealth Transfer
How to avoid one of the biggest mistakes in your estate plan – failing to prepare for the Great Wealth Transfer
The United States is on the cusp of an unprecedented financial shift known as the Great Wealth Transfer. Over the next two decades, an estimated $84 trillion will transition from older generations—primarily baby boomers—to their heirs, charities, and other beneficiaries. This massive shift presents unique opportunities and challenges, making estate planning a critical consideration for both wealth holders and recipients. Proper planning can ensure the smooth transfer of assets while minimizing tax liabilities, reducing disputes, and securing financial legacies.
Understanding the Great Wealth Transfer
The baby boomer generation, which has accumulated significant wealth through homeownership, investments, retirement accounts, and business ownership, is beginning to pass on these assets on to their children and grandchildren. This shift will reshape financial landscapes, particularly as younger generations inherit not only wealth but also the responsibility of managing it. Without comprehensive estate planning, this wealth could be eroded by taxes, mismanagement, and legal disputes.
My clients plan for their children’s inheritance of their wealth with the caveat that outright distributions may not be the correct fit for all their heirs. Planning this wealth transfer is critical to getting it right.
Key Estate Planning Considerations
1.Updating Wills and Trusts
A surprising number of individuals have outdated wills—or none at all. A will ensures that assets are distributed according to the deceased’s wishes, while a trust can offer additional benefits such as asset protection, tax minimization, and probate avoidance. Given the changing tax landscape, individuals should regularly review and update these documents.
2. Tax Implications and Planning Strategies
Currently, the federal estate tax exemption stands at $13.99 million per individual in 2025, but it is set to drop to approximately $7 million in 2026 unless Congress acts to extend it. Wealthy individuals should consider strategies such as lifetime gifting, irrevocable trusts, and charitable donations to minimize estate taxes.
Additionally, state-specific estate and inheritance taxes vary, with some states imposing taxes on estates well below the federal threshold. Consulting with an estate planning professional can help mitigate potential tax burdens at both state and federal levels.
3. Gifting Strategies and the Annual Gift Tax Exclusion
One way to reduce an estate’s taxable value is through gifting. The annual gift tax exclusion allows individuals to give up to $19,000 per recipient in 2025 without triggering a tax liability. Strategic gifting over time can significantly reduce an estate’s size while benefiting heirs during the donor’s lifetime.
The IRC also allows payment directly to an educational institution at any grade level, college level, higher ed, private school for younger grades for tuition only. Payment of medical expenses applies only to deductible medical costs such as medical insurance, prescription drugs, or payments directly to a provider for medical care. There is no need to file a Form 709 for these gifts because the above-mentioned payments do not fit the IRC definition of gift as used on Form 709.
4. Planning for Retirement Accounts and the Secure Act 2.0
The Secure Act of 2019 and its subsequent updates have changed how inherited retirement accounts are distributed. Non-spousal beneficiaries must withdraw all funds from an inherited IRA within 10 years, which can result in significant tax consequences.
5. Business Succession Planning
For business owners, succession planning is crucial. A well-structured plan ensures the continuity of the business and prevents potential disputes among heirs. Options include transferring ownership through a family limited partnership, selling the business to key employees, or structuring buy-sell agreements funded by life insurance.
6. Addressing Digital and Non-Traditional Assets
With the rise of cryptocurrency, NFTs, and online businesses, estate planning must now include digital assets. Proper documentation of account access, legal authorizations, and secure storage methods are essential to prevent loss or disputes.