Monday, August 20, 2018
Leaving it All Behind – Billions Coming from the Boomers
If you ask the average millennial they will tell you that the world that is being left behind from the Baby Boomer Generation is far worse than the one Boomers received decades earlier. I am not here to debate who screwed who over, but I will explain to all you jaded millennials one simple fact. We are in the midst of the largest intergenerational wealth transfers in the history of the world. Over the next 30 years an estimated 750 Billion will leave our parents bank accounts and enter ours. In America, that number is estimated at over 30 Trillion! Yes, that is Billion with a “B” and Trillion with a “T.” The numbers are staggering and it kind of makes you think. Ever wonder why banks seem to be targeting a younger audience? It’s not because they think we are cool, just a heads up. In my post today, I will discuss a few things to think about for boomers and their heirs when dealing with this type of inheritance. It is not as simple as just handing over an envelope of cash at Christmas.
For the Boomers
Are the kids ready for this?
We have all heard about the stories of lottery winners going broke within a few years of hitting it big. What people need to understand, mostly the heirs, is that an inheritance is not the lottery. While blowing all your lottery winnings is stupid, it was also found money. An inheritance was worked for and often has a specific purpose behind it. Parents need to take part in the planning of inheritance money with their children. I know the conversation can be tricky because it centers around death. Take the death part out of the equation and it is quite simple. Boomer parents should actively try to understand their children’s financial pictures as to help them be ready for the inheritance windfall. Not doing so could mean that it gets spent on something you did not wish it to be, like paying off debt.
Are you ready for this?
While speaking with estate planners is often boring and sometimes grim, it is also very important. There are huge tax implications with leaving money behind and you should be aware of them. There is also the possibility of your estate being contested which is very scary. This exemplifies the importance of an up to date will. It also exemplifies the importance of discussing the inheritance with your children as their relationships could influence the dispersing of funds, ie. Divorces. While telling your son you want this money to go to him and not his wife should they separate could be awkward, it is important. Making sure you have up to date beneficiaries for all of your policies and an up to date will help to process move more smoothly. My long-lost cousin, “The Artist formerly known as Prince,” died without a will. His estimated 300-million-dollar estate was therefore at risk. You do not want that to happen.
Can it be cleaner?
The transition of funds from one generation to the next can often take years. Yes, not months, years. All the while lawyers are taking their sweet time and the government is licking their chops. While the thought of putting all your money in a life insurance policy doesn’t seem prudent, it is absolutely the best way to leave money to the next generation. The main reason is the tax. All proceeds of life insurance all dispersed tax-free to named beneficiaries. Another reason to update those policies when you get a chance. There is no money taxed as income to the heir, or even capital gains paid. It is also the fastest way to move money to the next generation. Money from a life insurance policy can reach your heirs in weeks, not months or years. If the death is of normal causes, it could even be days. It avoids the estate so that means no probate, no contesting it from others, and no public record of it be dispersed. It is clean, quiet and efficient. If you have money that you know will go to the next generation, there is absolutely no better way to leave it behind than in a life insurance policy.
For their heirs
What do you have going on?
While inheriting a bunch of money might seem simple for the receiver, it can be a bit more complicated. I know that I don’t want any money from my parent’s to be used to cover any foolish mistakes I made. I also know that intergenerational wealth is only useful if it is used wisely. One bad link in the chain can destroy a family legacy. What I am getting at is that heirs should make sure their financial ship is in order as well. Having debt under control and a balanced spending/savings plan goes a long way. It is tough for younger people to get the attention they deserve from financial planners because of their low net worth, but there are many steps you can take to get it rolling. Find secure employment, pay off or begin to pay off debt, save a little for the future and spend less than you make. There are also tons of online resources to help you out. Be proactive in your own financial futures.
Do you depend on getting an inheritance?
I have advice for all those people out there who think they are getting an inheritance and are counting on it to make them whole. Be careful! Firstly, you should never depend on getting an inheritance. Your parents may, in fact, need this money as they get older and their estate decreases. By the way, it is their money. They also might have other intentions for this money, such as leaving it to your children, their grandchildren. Chances are, if you are depending on an inheritance, the person leaving it knows it. No one likes thinking their children are just waiting for their money. Not only that, it could be years before you receive this money, even decades. Are you going to live in squalor that whole time? From my experience, parents like to reward their children for being good people, financially and otherwise. Being a brat might just mean the money gets left to the church.
Will this hurt you or help you?
It is hard to think that receiving a large amount of money can hurt you, but it most certainly can. Star athletes, lottery winners, and trust fund babies all have examples of how money can ruin their lives. If you are not ready to receive this money, chances are it will disappear. This money should not be invested in some fly-by-night venture or speculative stock tip. It was grown over time through hard work and wise choices. Continue that trend by making the same wise choices. Have a foundation in place of sound spending habits and wise investment products. Also, make sure that you have proper insurance in place as well. You may want this money to go to your children one day. Having your ship in order will make sure this money lasts not only your lifetime but possibly many others as well.
I believe that the transfer of wealth should be an open and frank conversation among families. We need to remember that when doors are closed, mistakes can happen. The conversation tends to be avoided because it centers around death. It should center around life and love. Your parents are leaving you this money because they love you, not because you want them to die. Making sure the transition is as smooth as possible is better for everyone involved. Remember that there will be people you don’t want with their hands open, lawyers, the taxman, etc. Make sure your wishes are followed with a little bit of proper planning.
“The only wealth which you will keep forever is the wealth you have given away.” – Marcus Aurelius
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