I recently got a phone call from a couple that fell into this situation. Unbeknownst to them, their seemingly modest-living great-aunt had quietly accumulated an eight-figure retirement savings nest egg through more than 50 years of patient, blue chip stock investing, and she was giving them a large portion of it. My phone rang on a Saturday and a nervous, surprised voice told me there was some financial planning to do. As sad as it was to see the passing of Aunt May, they were beyond grateful that her financial endowment would profoundly benefit the lives of several great-nieces and great-nephews.
Even if you don’t end up with this kind of inheritance, the sheer gravitational pull of it all might add up to more than you might think. And from the other side of the equation, perhaps you’re a baby boomer starting to think about maximizing the utilization of your investments. You still have plenty of happy retirement to live, but it’s never too early to plan. Remember that no matter the size or construction of your portfolio, there are no ATMs in heaven. Why not leave something that will impact the world and leave those around you feeling thankful for your contribution?
As we all know, a little financial planning goes a long way. Once you take stock of your specific situation, you may realize that in 10, 20 or 30 years you may have significant wealth. Consider a few rules in this process:
Rule #1: Recognition. It’s okay to admit that there may be a big pile of money left after you’ve gone. Make sure you and your spouse are solvent, but what do you want to happen to the rest of it? It would be a shame for it to go unused, so start thinking about where you might want to see it go.
Rule #2: Uses Today. If it turns out you will have a surplus, that may impact your current giving strategy. Perhaps some of your favorite people and organizations could benefit right now from your hard work and savings. Imagine how good it would feel to see the positive reverberations of your generosity on those grandkids while you’re still part of their daily lives.
Rule #3: Uses Tomorrow. This is where you will have to think through the instructions that you pass on to the next generation. Take advantage of will and estate planning to decide the best and most tax-efficient use of your hard-earned savings. There are some useful donor-advised funds (DAF) that create a tax-efficient path for giving both today and tomorrow. They allow you to parse out a large amount over time, while only being taxed for that specific annual allocation.
With the current tax rate, the reality is that the vast majority of people can pass on their assets without having to worry too much. Sure, it’s always possible for Congress to lower the estate tax exemption in the future, but it presently sits at over $12 million per person and $24 million per couple. Rather than stressing about what you can’t control, focus on leaving behind a clear road map for future recipients. This can be done through a will or a variety of different trusts. A family estate planning attorney can help you figure out the best way forward.
The bottom line is that in the coming years a lot of money will transfer hands. Some people will be affected more than others, but the jolt will be felt far and wide. It would be foolish not to chart your own course on the giving or the receiving end. The question isn’t will The Great Wealth Transfer happen? We know that it will. The question is how will you handle it most effectively for your happy retirement and for the legacy of you and your family?
Wes Moss is the host of the podcast “Retire Sooner with Wes Moss,” found in the podcast app right on your smartphone. He has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than 10 years now, and he does a live show from 9-11 a.m. Sundays. He is the chief investment strategist for Atlanta-based Capital Investment Advisors. For more information, go to wesmoss.com.
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