and What It Means for Your Family
Submitted by Tim Whisler, CRPC®, CLTC®, Certified Financial Fiduciary® President of The Whisler Agency
Over the next few decades, America will witness one of the largest financial shifts in history—the Great Wealth Transfer. This monumental event refers to the transfer of approximately $84 trillion from the Baby Boomer generation to Generation X and Millennials.1. For families, this transfer is not just about money changing hands from one generation to the next. It involves legacy, careful planning, tax considerations, and the potential to create generational financial security. However, it also comes with significant risks and challenges that must be navigated carefully.
The Baby Boomer generation, born between 1946 and 1964, has accumulated significant wealth over the years. As they age and reside in retirement, they are beginning to pass their wealth on to their heirs, primarily Generation X. This transfer will have wide-reaching implications, not only for individual families but also for the broader economy.
This $84 trillion wealth transfer is unprecedented in scale. Previous generations have passed down wealth, but never before has there been such a significant amount involved. The size of this transfer is driven in part by the fact that Baby Boomers represent one of the wealthiest generations in history.
But what does this wealth transfer mean for those who will inherit it? And how can both Baby Boomers and their heirs prepare for the challenges that come with managing and preserving such significant financial assets?
Many people tend to think of Millennials as the next major economic force, but Generation X is now entering what is often referred to as the “Retirement Red Zone.” This critical 10-year period, which is defined as the five years prior to retirement and the first five years after retirement, is crucial for financial planning. Generation X is starting to inherit wealth from their parents, and this wealth transfer will continue for several decades.
While they have experience in handling their own finances, managing inherited wealth presents a different set of challenges for Generation Xers. For example, they will need to navigate investment decisions, manage risks, and understand the tax implications of inheriting money or assets. For Baby Boomers, the challenge is ensuring that they leave behind a legacy that reflects their values while minimizing tax liability for their heirs.
One of the biggest challenges facing those who inherit wealth is the lack of experience in managing large financial assets. Generation X, who are now entering retirement, will need to understand how to manage their newly acquired wealth in a way that ensures long-term financial security. For many, this means working closely with a retirement income planner to develop a comprehensive strategy that takes into account their goals, risk tolerance, and tax situation.
Managing inherited wealth is about more than just making investment decisions. There are also risks involved, such as market volatility, which could result in the loss of a significant portion of the inheritance. Moreover, there is the challenge of tax implications. Without proper planning, heirs could
be hit with substantial tax liabilities that diminish the value of their inheritance. This is why it’s crucial for Baby Boomers and their heirs to work with a professional who has the experience to help them navigate these complexities.
One of the most important considerations in the wealth transfer process is understanding the potential tax consequences. Without proper planning, beneficiaries may inherit a “tax bomb” that could significantly reduce the value of their inheritance. For example, inherited IRAs can trigger substantial tax liabilities if not managed properly. The SECURE Act, which was passed in 2019, eliminated the so-called “stretch IRA” for non-spouse beneficiaries, meaning that many heirs will have to withdraw the full amount of an inherited IRA within ten years, potentially leading to a large tax bill.
Fortunately, there are strategies that Baby Boomers can use to help minimize the tax burden for their heirs. One common approach is converting traditional IRAs into Roth IRAs, which are not subject to required minimum distributions during the original owner’s lifetime and can be passed on to heirs tax-free. This requires careful planning and a clear understanding of the long-term tax implications, but it can be an effective way to preserve more of the transferred wealth for future generations. It’s not a one-size-fits-all scenario and may not be suitable for certain investors.
The financial aspects of wealth transfer are critical, but equally important is the emotional and familial component. Generational wealth transfer is as much a family matter as it is a financial one. For many families, legacy planning is about more than just passing down money or assets—it’s about ensuring that future generations have the tools, knowledge, and values they need to manage that wealth responsibly. In addition, inherited funds are often portrayed as an “emotional asset” since they were passed down from Mom and Dad.
Open communication between Baby Boomers and their heirs is key to a successful wealth transfer. Too often, families avoid discussing finances, which can lead to confusion and mismanagement down the road. Baby Boomers should engage their heirs in conversations about their financial goals, the importance of preserving wealth, and the responsibilities that come with inheriting significant assets.
A Retirement Income Planner can play a crucial role in facilitating these conversations, helping families create a written plan that outlines not only how wealth will be transferred, but also how it should be managed. This helps to ensure that everyone is on the same page and prepared for the responsibilities ahead.
If you’ve not yet had this conversation and want to secure your financial legacy with a tax-efficient wealth transfer, let’s schedule that conversation. Give our office a call at 309-291-0491. When we meet, I will provide you with a complimentary copy of my new book License to Spend.
To learn more about Tim and The Whisler Agency, go to www.thewhisleragency.com. Click on Podcast to be directed to the “License to Spend” podcast. Be sure to subscribe to be notified when new episodes are available. You can reach Tim at (309) 291-0491 or by email at tim@thewhisleragency.com.
Investment advisory services are offered through Foundations Investment Advisors, LLC, an SEC Registered Investment Advisor. The views, statements, and opinions expressed herein are those of the author, Tim Whisler, and not necessarily of Foundations or their affiliates. The content provided is for educational purposes only. No investment, legal, or tax advice is provided. A Roth conversion may not be suitable for your situation. The primary goal in converting retirement assets into a Roth IRA is to reduce the future tax liability on the distributions you take in retirement, or on the distributions of your beneficiaries. The information provided is to help you determine whether or not a Roth IRA conversion may be appropriate for your particular circumstances. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor to be sure a Roth IRA conversion fits into your planning strategies.