Data from the U.S. Census Bureau show that there are 76.4 million Americans from the “Baby Boom” generation living today. Baby Boomers – those individuals born between 1946 and 1964 – are currently of an age to retire or prepare to retire (even the youngest ones). In the coming years, the wealth transfer from the Baby Boomers to younger generations is expected to be record-breaking: estimates have found that approximately $72 trillion worth of assets are currently possessed by Baby Boomers, and much of this wealth will ultimately be transferred to heirs.
At the same time, many Americans from this generation have failed to properly build an estate plan. One study found that only 43 percent of Americans have a will. This is an issue of concern, particularly for Americans with dependents such as a spouse, children, or even elderly parents – who may rely on them for financial support. Estate planning is a critical way property owners and investors can protect their loved ones in the future. With the right guidance, individuals can create a legacy that will maximize the amount of wealth they transfer to heirs by limiting taxes, errors, and unnecessary administrative costs.
Strategies for Preserving and Passing on Wealth
Generally speaking, these strategies involve the creation of wills or living wills. At its core, a will is a comprehensive legal document that outlines an individual’s final wishes and how they want their assets distributed. A will also identify who will manage an estate and care for any minor children or dependents after an individual’s death. Legacy planning may also include the creation of trusts. A benefit of a trust is that it will generally allow heirs to bypass the expensive and time-consuming process of probate and make an individual’s assets immediately accessible upon death. Trusts can also be used to reduce estate taxes, protect heirs from creditors, and ensure that assets that are designated for dependents are distributed according to the legacy holder’s wishes.
Planning for Philanthropy
The Baby Boomers have traditionally been generous when it comes to charitable causes, and many may wish to include these favored causes in their estate planning. Charitable giving can result in disputes among family heirs, however, so it’s critical that these charitable legacies be crafted properly so they are not legally open to challenges.
Legal and Tax Considerations for Legacy Planning
Few people today are hoping to pay as much as possible in taxes when their estates are transferred. That said, an improperly planned estate can be costly to heirs when tax considerations are not carefully weighed. Estate taxes are those that are levied on the value of an individual’s assets at the time of their death. This tax is calculated based on the total value of an individual’s estate, including personal property, cash, investments, and real estate. Tax considerations are highly complex and may be affected by state, federal and even local law. Estate taxes can significantly reduce the amount of wealth available to heirs, so proper legacy planning needs to involve understanding the rules and planning ahead to minimize taxation. An experienced financial advisory firm can ensure that clients have a comprehensive and legally binding plan in place that is designed to eliminate confusion, family conflict, unnecessary costs, and taxation when the time comes to transfer a legacy.
In addition to wills and trusts, inter-vivos trusts, also known as living trusts, play a crucial role in estate planning. These trusts allow individuals to transfer assets during their lifetime, effectively removing them from the probate estate. Living trusts provide numerous benefits, including avoiding the probate process, ensuring privacy, and facilitating a smoother distribution of assets to beneficiaries. Furthermore, within the context of wills, it’s essential to include advanced healthcare directives. These directives outline an individual’s medical preferences in case of incapacity, ensuring their wishes are honored and providing clarity to loved ones during difficult times.
An experienced financial advisory firm can ensure that clients have a comprehensive and legally binding plan in place that is designed to eliminate confusion, family conflict unnecessary costs, and taxation when the time comes to transfer a legacy.