The Oncoming Baby Boomer Wealth Transfer

Baby Hold Onto Me… Whatever Will Be Will Be…

Ready or not, it’s expected that within the next 25 years we will see one of the greatest wealth transfers of all time. The estimated Baby Boomer wealth transfer will see well over $6+ TRILLION (yes, that’s a “T”) passed from Baby Boomers to their heirs or charities.

Naturally, the government will also get its cut.

Those tasked with managing family assets will be faced with both significant opportunities and noteworthy challenges, especially when it comes to real estate holdings.

The post-WWII economic boom saw unprecedented growth in all asset classes. Favorable tax policies and buoyant markets have enabled Baby Boomers to amass approximately 70 percent of all disposable income.

Weaned on technology encompassing everything from online trading to robo-advisors, Generation X has been savvier when it comes to financial planning and is set to inherit more than half of these assets as the torch gets passed.

Baby Please Don’t Go… Baby Please Don’t Go…

This “Great Baby Boomer Wealth Transfer,” however, is complicated when considering the various forms of real estate investments. Real estate partnerships, commercial real estate, and tenant-in-common interests make up a substantial portion of assets to be transferred.

According to recent Federal Reserve data, Boomers are holding onto their real estate holdings (and often living on their own) much longer than previous generations. However, unlike traditional stock and bond portfolios, direct real estate ownership presents numerous unique challenges that inevitably fall to the next generation if any estate planning has occurred.

Issues such as ownership transition, property management, capital improvement, and loan/mortgage provisions, all coupled with the general lack of liquidity in the real estate markets can create a nightmare scenario for unprepared families.

Oh Baby-Baby, How Was I Supposed to Know?

While technologically savvy when it comes to investing, Gen X has not held the same level of interest in real estate as their predecessors. Because of the popular Do-It-Yourself Flip shows, Gen X has mostly bought and sold real estate for short-term gains, rather than building generational wealth .

Given their general disdain for the markets and investing, Millennials only further complicate things when it comes to financial planning and real estate transfers. Despite the world of meme stocks, cryptocurrencies, and brokerages that have sprung up overnight to cater to Millennials, they remain the highest earners on record, with the least amount of wealth to their name.

Their higher cumulative debt, coupled with endless tuition bills and markets that have been less than favorable as compared to past generations, leaves the idea of purchasing real estate a novel idea at best.

The combination of lackadaisical attitudes towards money by the youngest generations and a lack of bona fide financial planning in place by the Boomers means the “Great Baby Boomer Wealth Transfer” is shaping up to be a perfect storm of sorts with only one winner—Uncle Sam.

Baby Come Back… You Can Blame it All on Me…

Families intending to transfer real estate assets need to engage earlier. Conversations about wealth transfer make for interesting—often heated—Thanksgiving conversations, but early preparation is paramount for maintaining generational wealth.

For many families, the most convenient and reliable way to protect generational wealth is via trusts.

Structures such as revocable and irrevocable trusts can clearly delineate a path to inheritance, while also addressing potential tax issues and implications.

While easy in theory, even the savviest financial planning professionals would concur that when you factor in commercial real estate and speculative real estate holdings, generational planning can be incredibly difficult regardless of how much advanced planning is in place.

The various tax implications, gifting rules, and transfer rights, along with partnership accounting, and tenant-in-common properties make standard trusts anything BUT standard.

Hit Me Baby One More Time…

Baby Boomers may be hesitant to think about end-of-life planning. Recognizing your own mortality is almost as torturous as watching the inherent squabbling and family strife that comes with planning for generational wealth transfer.

True certified financial professionals who have an active and vast understanding of the nuances of real estate-related assets will best serve those families who are willing to have an open and honest dialogue. They are the line of protection to ensure that the assets are not diminished or overly taxed upon transfer.

If planned appropriately, through the effective use of charitable trusts, income can be generated for future generations. The assets can be protected, and in most cases, Uncle Sam will get a smaller take, thanks to favorable tax consequences.

Effective dialogues with an estate planning attorney will mean the best possible assessment of the disbursement and protection of multi-generational wealth.

Uncle Sam can wait his turn unless you have an actual Uncle Sam in your family who is planning on passing along his real estate portfolio. In that case, let him get first dibs on the drumstick at Thanksgiving; it will be worth it in the long run.