Kin To Reap $32 Trillion In Wealth Transfer

We came across the below article featured in Market Watch  and felt it was important to share.

Reading through it started to make us think about a topic that is heavily represented in the media today, increasing student loan debt and little opportunities for young professionals to grow. If student loan debt is a barrier for young professionals to gain credit, then maybe we should think about using creative ways to move or lean against future inheritance with sums under IRS limits.

For example, rather than co-signing on a loan or giving them a personal loan, gift and charge back to the estate. This could include the purchase of a home (Baby Boomer investment) to help alleviate rent costs for a young professional. Have them pay you back instead of the banks.

Hoping for an inheritance? Here’s some good news: While the recession greatly reduced the amount of wealth that individuals and charities can expect to inherit over the next 50 years, in total they are still on track to receive the greatest wealth transfer in U.S. history, according to a new report issued by researchers at the Center on Wealth and Philanthropy at Boston College.

Closely watched by charities, the report estimates that $58.1 trillion will flow from one generation to the next between 2007 and 2061. That’s 12% more than the $52 trillion the researchers estimate will be handed down from 1998 through 2052. (Both estimates are calculated in 2007 dollars and assume a 2% average annual return.)

Yet here’s some not-so-good news: if the recent recession had never occurred, inheritances from 2007 to 2061 would be $72.2 trillion—or 25% higher. The recession reduced household wealth substantially – by an average of 25% overall and by 21% in the case of households with $1 million or more of assets, which account for as much as 88% of the wealth transferred upon death. As a 2012 WSJ article explains, disappointment over reduced inheritances can cause tension within families.

Because the wealthiest households account for a disproportionate share of inheritances, the average household is likely to “transfer a modest amount,” says the report.

The study found a new trend in bequests: Parents these days transfer about 17% of their wealth while still alive. Such lifetime transfers, the report says, were “not evident before the millennium” and are growing, the report says.

Of the $48.3 trillion that’s expected to be transferred upon death, here’s the breakdown of who gets what:

  • Uncle Sam: $9.8 trillion (in the form of estate taxes)
  • Charity: $5.4 trillion
  • The kids and grandkids: $32 trillion
  • The lawyers: $1.1 trillion (for estate closing costs, including legal fees)

These figures assume estates pay an estate tax on wealth in excess of $1 million. If the tax is applied only on holdings above the $5 million mark—as is currently the case—heirs are likely to receive a higher share of the proceeds and the government less, the report says. Depending on the assumptions used about future investment returns and estate taxes, wealth transfers are likely to range from $34.5 trillion to $188.5 trillion between 2007 and 2061.

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