LIVE NOW with Carson Wealth Issue 4 - Winter 2022 - Page 11

Smooth Transitions PASSING DOWN WEALTH


lot of things have changed in the last few years , to say the least . All those changes , however , are nothing when compared to what will be happening as millennials and Generation X begin to inherit the wealth of the baby boomer generation . At an estimated $ 68 trillion , it will easily be the largest intergenerational wealth transfer in history . Unfortunately , according to RBC ’ s 2017 Wealth Transfer Report , most of that inheritance is going to go to individuals who are unprepared , unsupported , and uninformed about the process . That , in turn , can lead to mismanagement of the money being passed down the family line . That mismanagement is the best reason to consult an advisor to get things heading in the right direction from the start .
Through the decades , the baby boomer generation has amassed a significant amount of wealth . They control nearly a staggering 70 percent of all disposable income according to US News & World Report in 2015 . Just considering individual retirement accounts ( IRAs ) in the United States , more than $ 9 trillion in assets are tied up in this retirement vehicle alone . Many Americans stand to inherit a substantial amount of their wealth from those IRAs . Unfortunately , due to the way those accounts are structured , mistakes in handling these accounts can result in a huge amount of wealth being lost to taxes .
Generally speaking , there are four reasons why wealth transfer from one generation to the next fails :
1 . Breakdown of family communication and trust . 2 . Inadequate preparation of heirs . 3 . Failure to establish a family mission . 4 . Poor understanding of tax law and investment advice .
When it comes to family communication and trust , it is not as nefarious as it sounds . The reality is that most people don ’ t think about the future or plan for it the way they probably should . With wealth management , people think about retirement and what they will do , they come up
with a plan and seek the counsel of their own financial advisors , but they often don ’ t share that information . Beneficiaries then do not have an accurate understanding of what the plan was or how to fully execute it , creating a gap .
Regarding preparation of heirs , and continuing the point about communication from before , many people who inherit money simply don ’ t understand tax law or gifting strategies . Utilizing accounts like IRAs or some other investment accounts and passing them from one person to another through inheritance or other means often does not imbue the recipient with a full understanding of what it is . IRAs in particular are a difficult example because pulling money out early or not handling it in the proper way can result in huge fees and taxes , thus shrinking the pot as a whole .
The establishment of a financial plan for the whole family is a way to avert those two issues . The family should create a formal wealth plan with their financial advisor . Once the initial plan has been created , they should keep it updated through yearly meetings with their advisor to go over inheritance plans , changes in taxes , assets , and plans for the future . This is not limited to plans for transition of wealth from one generation to another but also things like gifting , understanding what accounts and assets are owned , and who has access to them .
The final , and perhaps worst , reason for failure to transfer wealth is a combination of bad tax and investment advice . Nearly everyone has an “ expert ” opinion on investments , estate planning , how taxes work , and almost everything else under the sun . Knowing which pieces of advice are accurate and which are not is a burden at best . That is why touching base with a financial advisor on a yearly basis is an essential part of any financial plan . Being prepared ahead of time is the only way to ensure things will go according to your wishes . One thing that is going to be coming up in the next few years is the expiration of the Tax Cuts and Jobs Act that was enacted in 2017 under the Trump administration . In 2025 , that act is going away and with it will come new taxes . The issue ? Those taxes might go up even more than they were in 2016 before the Act was put into law to begin with .
So what is the big takeaway from all of this ? If you glean one thing from all of this information , it should be that you need to start incorporating your heirs and beneficiaries into your financial planning meetings with your advisor . Even if that means taking them into the meetings with you so they can get a general idea of what is going on . That road map is the key to financial success being passed down to the generations of the family . Do your beneficiaries understand your estate plan ? Have you discussed it with them ? If not , now is the time .
Jake Stone Wealth Advisor
Jake first started in the financial planning industry in 2017 after completing his Masters in Business Administration from King University . Originally from Raleigh , NC , Jake came to the East Tennessee area to further his education and to play college golf at King . Between undergraduate and graduate school , Jake met the love of his life , Abby , who is a Bristol native . They got married in the fall of 2019 and their passion is to travel and enjoy time with family and friends . Abby is an Intensive Care Unit nurse in Johnson City , TN , and has played a huge role in helping people heal during the COVID-19 pandemic . Now that they are both vaccinated , they hope to get back to traveling soon ! They have one four-legged child named Ellie ; she is a Golden Retriever-German Shepherd mix and always keeps them busy . Over the four years as a stakeholder with Carson , Jake has been a Client Relationship Manager , Director of Operations , and now a Wealth Advisor .
Jake is not registered with Cetera Advisor Networks , LLC .