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Published on: 09/26/2023 • 5 min read

What to Know About the Great Wealth Transfer

Have you heard of the Great Wealth Transfer? It refers to an anticipated massive shift in wealth distribution, as Baby Boomers (the wealthiest generation on the planet with a reported mean net worth falling between $970,000 to $1.2 million) get ready to pass on trillions of dollars to the next generation.

Because a transition of resources on this scale has never taken place on planet Earth, this unprecedented wealth transfer has garnered some attention, as well as prompted some important questions. What are the economic implications? How far-reaching can we expect the shockwaves to be? 

In this article, Avidian Wealth Solutions will discuss the Great Wealth Transfer, who may stand to benefit from it, and how those passing on and inheriting wealth can set themselves and their families up for success post-transfer. 

What is the Great American Wealth Transfer? How much money is involved?

The Great Wealth Transfer, also dubbed the Great American Wealth Transfer by some, refers to the massive migration of assets from Baby Boomers to their heirs. Baby Boomers had much more opportunity to generate wealth over their lifetimes than their parents (known as the Silent Generation) because of things like appreciating property values, lucrative investments, and higher wages relative to the cost of living.

Essentially, the average Baby Boomer has experienced more prosperity than their parents and has had time to let that wealth grow. Now, that wealth is being passed down.

Some experts have anticipated that $84.4 trillion in assets will be passed on through 2045. Having this kind of money passed down to generations who are in much greater levels of debt is expected to cause significant changes to take place across markets. 

Who will benefit from the Great Wealth Transfer?

The primary beneficiaries of the Great Wealth Transfer are expected to be the heirs of the Baby Boomers. These heirs are composed of both Generation X and Millennials. 

A hint to some of the economic shifts we may see resulting from the Great Wealth Transfer might be hidden in some of the ways that these generations differ from their predecessors, including the fact that:

These observations hint at the fact that there is still an opportunity for GenXers and Millennials to benefit from the Great Wealth Transfer, even if their access to wealth is much different than it was for Baby Boomers. Additionally, they may offer a peek into future economic shifts that could occur as the younger generations start inheriting massive amounts of wealth.

Revenue Ruling 2023-2

Before discussing the Rev. Rul. 2023-2 itself, a refresher on intentionally defective grantor trusts, or IDGTs, is necessary to provide some context. IDGTs allow grantors to transfer assets into a trust while retaining a small amount of control over those assets, making them a pretty powerful tool for estate planning advisors

What essentially happens when assets are transferred into an IDGT, is that they are removed from the taxpayer’s estate as far as the federal gift and estate tax are concerned, but not from their income tax, reducing the taxpayer’s taxable estate. IDGTs are a powerful vehicle for transferring assets and lowering tax burden, but what does this all have to do with Revenue Ruling 2023-2? 

Rev. Rul. 2023-2 concerns whether assets granted to an IDGT are eligible for a step-up in basis. A step-up in basis occurs when the cost basis of an inherited asset needs to be adjusted to fair market value (e.g. an asset has appreciated and the IRS wants you to pay more taxes on it). 

The good news is that Revenue Ruling 2023-2 determined that step-ups in basis do not apply to assets gifted to IDGTs, providing clarity on complex tax policies and protecting a very important piece of the estate planning toolbox. 

Continue reading about the inheritance tax and capital gains tax in Texas

Wealth transfer strategies

While wealth transfer statistics predict that this Great Transfer will be seismic, each individual recipient will still need to make sure they have measures in place to oversee the transfers and manage the money. If you’re set to pass on or receive a significant sum, you should make sure that you have the following services in place:

  • Estate planning services are the foundation for the protection and growth of your assets and can help you build a legacy for generations to come.
  • Tax planning services will help you maximize your returns and minimize the tax burden on assets that are rightfully yours. 
  • Asset management will help you to make sure your portfolio is doing as much as it can now that funds have become available and active. 
  • Charitable giving strategies can be planned so that your money goes to a good cause and reduces your overall taxable income year-round. 
  • Risk management will help you to protect the wealth that you’ve inherited, and allow you to do for future generations what your family did for you. 

Whether you’re passing on wealth or standing to inherit it, working with a trusted financial advisor can make sure that money stays where it belongs: in the family.

Continue reading about how to transfer a property title to a family member in Texas

Concerned about the Great Wealth Transfer complicating your finances? Call Avidian Wealth Solutions today!

Although the Great Wealth Transfer may represent a seismic shift approaching in the distribution of generational wealth, Baby Boomers and Millennials alike can rest easy knowing that they are working with a financial advisor who keeps the interests of their family front of mind. 

Avidian Wealth Solutions offers high-net-worth strategies for managing the wealth of high-earning individuals and families. We offer boutique family office services without the massive overhead of a traditional single-family office environment. 

If you want to know how Avidian Wealth Solutions can help you optimize your wealth for transfer, or how you can better prepare yourself for inherited assets, schedule a conversation with us today. 

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