Three steps to navigating the great wealth transfer

By Michael Ziminsky, Tompkins Financial Advisors

With approximately 70 million baby boomers aging into retirement, $84 trillion is projected to be passed down from older Americans to millennial and Gen X heirs through 2045, and $16 trillion of that will be transferred within the next decade, according to several published accounts.

Setting up generational wealth transfers can seem like a colossal undertaking, but following these three simple steps will help you secure your family’s financial future.

Organize your assets: Generational wealth is defined as any type of asset that is passed down a person’s familial line, whether it be cash, investment funds, or entire companies. With such large assets, wealth is often tied up in multiple accounts. It is important to give yourself plenty of time to effectively organize to whom and where specific items will be going. The best way to determine when you should begin the process is by looking at your current estate and net worth. A great baseline is when you begin retirement, often in your late sixties.

Understand the current laws: Once you have decided to begin the process of transferring your generational wealth, make sure you have an understanding of the current laws on both the federal and state levels. With the introduction of the CARES Act in 2020, the beneficiaries of a generational wealth transfer are now required to take a distribution over time and must liquidate the entirety of the account(s) over a 10-year span, paying income tax on those funds yearly. One way to get around this is to place the funds in a Roth IRA conversion account. While you will pay taxes on those funds upfront, this eliminates stress on your loved ones, as they will not have to pay those yearly taxes upon liquidation. It is also important to make sure you have a relationship with an attorney who has experience in generational wealth transfers, since they may be your loved one’s strongest ally.

Develop (and stick to) a plan of action: Once you have an understanding of the current laws and have connected with an attorney, the next step is to create a plan, ideally in conjunction with a financial trust officer. You, your legal team, and your financial officer will prepare an ideal course of action based on the funds you have, expect to have, the charities to which you wish to contribute, and the dividing of your estate among family members. Review your current Will and make sure the beneficiaries are updated. If you suspect there could be estate issues, a way to mitigate that is to place specific amounts of money into trust funds and assign them to key members of your family. This makes sure that your desires are carried out, even if family members have other ideas.

Making sure that all of your T’s are crossed and your I’s are dotted now will help your loved ones ensure that your wishes are fulfilled properly in the future.

Michael Ziminsky is a trust officer at Tompkins Financial Advisors, Hudson Valley. He is based n Mount Kisco.