OCEAN CITY – Today’s
baby boomers constitute one of the wealthiest segments of the U.S. population,
with an estimated $41 trillion expected to pass from boomers to their heirs by
the year 2052. If you expect to be a participant in this massive transfer of
wealth, you should approach it in a way that keeps family bonds strong, as well
as make sure it is handled in a tax-efficient manner.
Although many estate
plans are built around tax efficiency, there are other objectives that matter.
That’s why, when you speak with your financial advisor about your estate, you
might begin with a different question: What do you want your wealth transfer to
The importance of this
communication in planning can’t be overestimated. Because parents are sometimes
unsure about the best way to share financial information with their children, a
financial advisor can play an important role in getting the conversation
started. Families often find that once the topic of family finances has been
introduced in a clear and open manner, members are much more comfortable
speaking with each other about it.
This comfort level is
another reason it’s important for parents to introduce children to family
advisors. When children aren’t familiar with a parent’s advisors, the result
can be contending factions within the family concerning the execution of the
parent’s wealth transfer plans.
Once the family has
discussed your financial situation and your values, you should look into which
wealth transfer vehicles best suit your goals. One solution may be the
establishment of a personal trust. Today, there are nearly four million
personal trusts, more than twice as many as existed in 1997, according to
Tiburon Strategic Advisors, a market research firm.
About two-thirds of the
personal trusts that exist today are revocable living trusts, which allow heirs
to avoid the time, expense and public exposure of the probate process.
A trust can even be used
to provide for a loved one with special needs without affecting that child’s
ability to receive government benefits. For example, Sylvia and Mark Eastwold,
a couple from Alabama, wanted to make sure that their 22-year-old son Brian —
who can never be self-supporting because of a brain injury at birth — would
have care even after they passed away. Their Financial Advisors suggested a
trust that can supplement government benefits by providing for a home health
aide and rehabilitation, as well as activities such as the Special Olympics.
Of course, trusts are
just one estate-planning tool. Other techniques include annual gifting to loved
ones, where individuals can give up to $12,000 per person each year ($24,000
for a husband and wife) completely free of gift and inheritance taxes; the
direct transfer of appreciated stock to charitable organizations, which can
help you avoid capital gains taxes that would come with selling them outright;
and the establishment of 529 plans, which are a tax-advantaged way to help save
for a child or grandchild’s future college costs.
strategies involve IRA assets. By working with a financial advisor, you can
determine the best way to set up your IRA so that it can pass to your heirs
without tax penalties.
No matter what
strategies and techniques you choose, it is important to keep the lines of
communication open with all family members who will be affected by the
decisions you make.
(The writer is a Merrill
Lynch senior financial advisor. She can be reached at 410-213-9084.)