Member FDICFDIC-Insured - Backed by the full faith and credit of the U.S. Government

You don’t need to wait to give it away

Proposed changes to estate taxes may change the way that inheritance has traditionally worked

In historic proportions, upwards of 10,000 baby boomers are crossing the retirement threshold each day. This segment of our population holds more than half the country’s wealth, at $68 trillion. Over the next 20 years, much of that fortune will be passed down in what financial advisors are calling the great wealth transfer. With that amount of money changing hands, and the proposed changes to estate taxes under the Biden administration, the customary ways of inheritance may be about to change.

Traditionally, inheritances have been triggered at the death of individuals, typically passing to heirs all at once or distributed through trusts. In many cases, the amount transferred is substantial, indicating that many boomers are leaving behind more money than they would need in their lifetimes. Many are realizing that, because of all the family conflicts and issues a mass inheritance can cause, it might be better just to take with them. Of course that’s not possible. So, many people are considering a better option that provides them with greater control and an opportunity to help their children while they’re still alive.

The case for lifetime giving

This approach shouldn’t even be a consideration unless you have determined beyond all doubt that you have more than enough assets to meet your lifestyle needs in retirement. And that should include a sufficient amount of money to cushion against market volatility, long-term care, emergencies and your own longevity. Assuming all this is in place, you could consider the advantages of gifting your wealth to your kids and grandkids during your lifetime.

Under current estate tax law, individuals may gift up to $15,000 per year per child, free of gift taxes. Couples can contribute up to $30,000 per year per child. In doing so, you could realize the immediate benefit of helping your children now while increasing your family’s wealth over the long term.

Increase the growth of family wealth

Any income you derive from your investments could be subject to taxes at the highest marginal tax rate, which is 37% in 2021. It could go higher under some proposed tax changes. Alternatively, you could pass your cash to your children to invest, who could be taxed at lower tax rates. That would leave more to be reinvested for future growth. You can have the same effect on your family’s wealth by paying off non-deductible debt, such as your child’s mortgage. The interest savings is an immediate return on investment for your family.

Improve your children’s lives

We all want to do things for our children, but not at the expense of their failure to learn responsibility. It’s a delicate balance. There is also the fear that family wealth could be squandered through bad investments, divorce or excessive lifestyle. Helping your children buy a home, start a business or fund their children’s education are ways to share your wealth while controlling how it’s used. If your grandchildren are the ultimate beneficiaries of your wealth, it’s possible to exert some element of control by transferring your assets to a trust. 

Leverage your family wealth

Life insurance plans can be used to expand available assets and distribute assets tax-efficiently. The funds that accumulate inside the policy are not currently taxable and are accessible for current needs, and the death benefit is received free of taxes. There are numerous options available for designing a life insurance plan, so it would be essential to seek the guidance of an independent life insurance professional.

Communication is essential

Before deciding on a wealth transfer plan, it’s critically important to communicate your plan to your children and any involved family members. They must understand the purpose behind your plan and how it reflects the values you want to pass on to them. To avoid conflicts, it would be crucial to enlist a family lawyer to help create and communicate the plan to ensure everyone is on the same page.

Above all else, your financial plan must provide for your financial security, including having sufficient funds to meet your lifestyle needs, with funds allocated to cover emergencies, medical and long-term care, and most importantly lifetime income sufficiency. With all that in place you could consider the overall benefits of giving your wealth away during your lifetime.

Do you have a wealth management advisor? If it’s something you’re looking into, meet the team at Alpine Bank Wealth Management.

wealth management disclosure statement

About This Author


Alpine Bank

More about Alpine Bank

Allpoint It’s your money after all. Find a surcharge-free ATM