The “Baby Boomer” generation will pass approximately $3.2 trillion (yes, with T), on to the next generation, according to the RBC Wealth Transfer Report 2017. Only 30% of Baby Boomers have a full wealth transfer plan, and another 30% have no plan in place at all. According to those numbers, approximately $1 trillion is going to pass according to intestacy and subject to the full available taxation rules for assets. While the transfer of assets itself is significant issue – how it should be done, to whom, and in what amounts – perhaps the more pressing issue is the unexpected receipt of such assets by the next generation.
Americans are not unique when it comes to the “Found Money” phenomenon. On average, if someone is not expecting to receive a sum of money, large or small, they don’t tend to make wise decisions with that money. They go on vacation, by things they don’t need, and substantially deviate from any savings or investment strategy they had prior to receiving the money. To put it plainly: they usually blow the money, rather than investing those funds and making them grow for themselves or their own children. It becomes a cycle. According to recent statistics, 1/3 of all inheritances are wasted within 3 years. Think about that for a second.
Using trusts or family LLCs can put structure around the asset succession process and allow for your beneficiaries to receive and benefit from your wealth without risking the “found money” mentality mentioned above. You can also ensure that your beneficiaries are mature enough to receive a benefit instead of dropping a lump sum of assets on them whenever your death occurs, and you can appoint a responsible and financially competent person to manage the assets in the meantime (trustee or manager).
This is not just a 1% problem. Whether you have $5 million or $50,000, you need to have a plan in place for the transfer of those assets. The plan for an individual will look different between $50,000 and $5 million, but the plan for both with put your wishes first and use your rules instead of the state’s.
Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.
Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.