How to prepare for the great wealth transfer

Inheritance has long been a factor in many individuals’ financial plans, but it may look a little different for the next decade or so. It’s all because of what is being referred to as the great wealth transfer. 

What is the great wealth transfer?

The wealth the silent generation and baby boomers accumulated is starting to make its way to the next generations. It’s estimated that roughly $84 trillion will change hands in the U.S. by 2045,¹ a figure referred to as the great wealth transfer.

While much of the wealth may be transferred to younger generations, women are also set to inherit a large portion of it. “Statistically and historically, women outlive men,” says Nora Garvey, senior vice president and regional trust advisor at U.S. Bank Wealth Management. “If a woman [is married to a man] and outlives her spouse, the transfer may go directly to her when he passes. In that instance she's in control of how the assets are managed and then transferred to the next generation.” It’s important that both spouses are part of the wealth planning process.

While inheritance and wealth transfer may be triggered by death, Garvey says tax reasons are also a factor in today’s economic environment.

“We're seeing a heightened sense of transfer due to the current federal estate tax exemptions that are available, which is $12.9 million per person,” she says. “That’s set to sunset on Jan. 1, 2026, and revert to about $6 million, indexed for inflation. We’re seeing folks advance their transfer strategies now to take advantage of the gift and estate tax exemption that's currently in place.”

If you’re expecting a large inheritance, it’s important to be prepared so you can make the best decisions about how to manage your money.

How to prepare for a wealth transfer

Ideally, the senior generation will be willing to have a conversation about their wealth transfer strategy, allowing the next generation to plan. For example, you’ll want to get a general idea of the assets that will be transferred, how they’re titled and how they’ll be distributed. Knowing what to expect will help you understand your potential net worth and what you’ll need to do to manage and protect it.

It’s also important to realize that your relative’s wealth could change due to circumstances so what you believe you may inherit may not always come to fruition. For example, market movement could increase or decrease asset values. Or they may have an unexpected need to draw down funds, such as new or rising long-term care costs. Having a general idea, however, will help you with the most critical step, which is being proactive and educating yourself on what it means to have wealth, says Garvey.

Considerations for managing new wealth

Financial education should start young for everyone. If you’re in your 20s and early 30s, you’ll benefit from learning how to budget and making daily financial decisions, such as managing credit cards, understanding interest rates and building a credit score. As you start working, take advantage of any contribution match your company may provide into a retirement savings plan. Having a strong foundation will help you maximize your inheritance.

As you move through your career, Garvey says it’s important to maximize the tax advantage of contributing to retirement plans, like 401(k)s and IRAs. You’ll want to be sure you’re planning for the future, even if you expect to inherit a large sum.

A large inheritance may also change your career goals or your plans for retirement. For example, you may receive a sum of money that allows you to trade in your high-stress corporate job for something less lucrative but more meaningful. You may decide to retire early or relocate to a new city. Or you may finally have the funds to start your own business or passion project. By understanding the intergenerational wealth transfer plan, you can start creating a road map for what comes next.

“Don’t bury your head in the sand,” says Garvey. “Find a trusted advisor, because it can be complicated to inherit something you don't know about. You also want a plan that evolves with your life, because different circumstances are going to cause you to think differently.”

What if you are the one transferring wealth?

If you’re the one leaving wealth behind, a key piece of your wealth transfer plan will be putting legal documents in place that direct the transfer of your assets.

If you’ve named beneficiaries on any of your investment accounts, you’ve already started the intergenerational wealth transfer process. If you have tangible assets that are solely in your name, such as real estate, you should have a will or revocable trust in place that titles the assets in the name of the trust.

Creating a wealth transfer plan can feel like a difficult task, because you have to face your own mortality. But the lack of a plan is actually a plan, too—it’s just one that’s going to be defined by the government, says Garvey. Creating a formal plan gives you control and ensures that your assets go where you want them to go.

A financial professional can help make the great wealth transfer process easier. “I frequently facilitate multi-generational conversations about wealth, so the family legacy continues. My job is to first listen and get an understanding of what their goals and objectives are,” says Garvey. “I know the tax ramifications of certain decisions, and I may think that the direction a client is going may not be what they want. Most importantly, I highlight any unintended consequences of what they’re choosing to do.”

Creating a well-thought-out intergenerational wealth transfer plan becomes a gift to both the giver and the receiver by avoiding having to make decisions during times of grief or stress.

Learn how our approach to wealth planning can help you see a full view of your financial picture.