Transferring wealth from one generation to the next is a natural objective for many people. Thanks to generational population shifts in recent decades, that transfer of assets may have a potentially more pronounced impact on individual and societal levels than ever before.

The Federal Reserve estimates that 55.8 million Americans over 65 — about 17% of the population — hold half of America's wealth, which translates to $96.4 trillion.¹ As people born during the post-WWII baby boom — the “Baby Boomer” generation — progress through their senior years, their children and grandchildren as well as beloved charities, institutions and nonprofits stand to benefit financially.

What’s being termed “The Great Wealth Transfer” carries with it significant changes in wealth for benefactors and beneficiaries alike. Let’s take a closer look at what you need to know as you and your loved ones prepare to navigate this unprecedented shift in assets.

What’s driving The Great Wealth Transfer?

Baby Boomers — Americans born between 1946 and 1964 — have had a tremendous impact on our country’s political, social and economic life for more than the last half century. Born in a strong post-World War II economy, their collective arrival created a population boom and heralded extraordinarily rapid economic growth. Thus, the wealth accumulated in their lifetimes is significant.

As these “Boomers” make their inevitable exits, that collective wealth — money, real estate, stocks and other assets — will be transferred over the next 10 to 20 years.

And, as they’ve done with other aspects of their lives, these senior benefactors are reshaping what it means to pass the baton on their money, land, stocks, mineral rights and other assets to their beneficiaries.

How can you plan for the transfer?

Whether you anticipate being a benefactor or a beneficiary of modest or sizable wealth, there are many rules and regulations that can impact its potential valuation and tax-efficiency.

If you plan to transfer wealth, set aside time to review your estate plan regularly. This will help ensure it is up to date and matches your current wishes. And don’t overlook your will. A will helps direct how you wish your assets to be distributed after your death and it’s a key component of your estate plan. For sizable estates, a trust can be a useful tool (more on that in a moment).

If you anticipate becoming the beneficiary of an estate, there are things you can do to prepare for your inheritance,² such as giving careful consideration to your own long-term financial goals, from funding your children’s education to planning for your retirement.

Sometimes the nuances of wealth transfer can be so complex that many people opt to pull together a team of estate planning professionals to help stay compliant with laws and regulations. Additionally, when there are strong feelings about assets and their distribution, professionals including attorneys, accountants, trust administrators and wealth management professionals can help ease the minds of all interested parties.

Yes, benefactors and beneficiaries alike can benefit from working alongside individuals familiar with estate planning. In fact, if you’d like to go the extra mile to help your heirs navigate the management of inheritance, it can be worthwhile to make those introductions years or decades before they’ll receive your assets.

What are the tax implications?

When transferring or inheriting any amount of assets, the tax implications³ can be significant, making it essential that you work ahead to ensure a tax-efficient wealth transfer. From determining fair market value of assets to the filing of an estate tax return,⁴ there are different rules and regulations to keep in mind.

For example, the estate tax⁵ is a tax on your right to transfer property at your death. How much tax is imposed on any assets received from an estate is determined by several factors including the value of what is transferred and where it is located. Because each situation is different, a consultation with an expert can be key to helping you navigate the wealth transfer with minimal additional costs incurred.

In some instances, it may be savvy to begin the transfer of wealth long before someone passes. The gift tax⁶ is a tax on the transfer of property made by a living individual, without payment or a valuable exchange in return — and can be an important tool for wealth transfer during one’s lifetime. The donor — not the recipient of the gift — is typically liable for the tax. Again, a deeper understanding of things like gift and estate taxes⁷ can help make for a more tax-efficient wealth transfer.

How can establishing a trust help with The Great Wealth Transfer?

Setting up a trust can provide peace of mind to benefactors who want to be clear about their wishes and ensure they are followed.

Trusts are helpful to beneficiaries, too, as assets can transfer to them seamlessly and probate can often be avoided, saving them both time and money.

Creating a trust can also help you:

• Manage, reduce or mitigate estate taxes
• Preserve assets for your children or grandchildren until they are grown, should you pass away while they are minors
• Shift part of your income tax burden
• Provide long-term support to a loved one with a disability

The transfer of wealth via a trust gives you versatility and sets the parameters of distribution while you are still here to clearly state your wishes. Different types of trusts can be used to accomplish your goals, with each one addressing the specific objective you desire. You may want to tailor your trust to address specific issues — like providing for minor children or dictating care if you face incapacitation. A trust can also arrange for assets to benefit a cause or nonprofit you care about.

A knowledgeable trust administrator can walk you through the process of putting your estate's assets into a trust and coordinate work with other professionals that can assist you, such as attorneys, financial planners and accountants.

The takeaway

The Great Wealth Transfer is more than just a catch phrase. By understanding more deeply what this record-setting transfer of assets within American generations might mean, you may be able to protect your family's legacy for decades to come.

Would you like to learn more about how estate planning can help you make the most of The Great Wealth Transfer? Between our in-house RBFCU Trust Services staff and network comprised of attorneys, wealth managers and tax professionals, we offer personalized estate planning guidance to help you protect your legacy.