During the next two decades, an estimated $84 trillion is expected to be passed between generations – a wave dubbed the “Great Wealth Transfer.” There’s a good chance you or someone you know will be the beneficiary of newfound wealth as a result.
This also is a good time to understand what wealth transfers are. In layman’s terms, wealth transfers are the strategic movement of assets (usually money) from one generation to another. They can play a crucial role in not only shaping the financial future of individuals, but families and society as well.
In this article, we will cover types of wealth transfers, when you should consider a wealth transfer, and the far-reaching impact of wealth transfers.
What are the Types of Wealth Transfers?
When it comes to wealth transfers, there are plenty of options. It’s important to take time to understand the pros and cons of each type of wealth transfer. That way you can make the best decision for your needs or wants.
Inheritance. One of the most common forms of wealth transfer is through inheritance. This occurs when assets, such as property, money or investments, are passed down from one generation to the next. Inherited wealth can provide a financial safety net for individuals and families, allowing them to maintain their standard of living or pursue opportunities they may not have otherwise been able to afford.
Gifting. Another way wealth is transferred is through gifting, including giving money or assets to family members, friends, or charitable organizations. Gifting can be a way to share wealth with loved ones or support causes that are important to the one who is transferring wealth.
Charitable contributions. Wealth transfers can also take the form of charitable contributions, in which individuals or families donate money or assets to nonprofit organizations or causes they support. Charitable giving not only benefits the recipients but can provide tax advantages for donors.
Trusts & wills. Establishing trusts and wills is a common way to facilitate wealth transfers. Trusts enable individuals to set aside assets for specific purposes or beneficiaries, while wills outline how assets should be distributed upon the individual's death.
When to Consider a Wealth Transfer
So when might you want to consider a wealth transfer? Let’s explore common scenarios during which wealth transfers make sense.
Estate planning. Many people use wealth transfers as part of their estate planning process to ensure their assets are distributed according to their wishes after they pass away. This can help minimize estate taxes and prevent disputes among family members.
Generational wealth preservation. Wealth transfers are often used to preserve intergenerational wealth and provide financial security for future generations. By passing down assets to heirs, you could ensure your family's financial well-being for hopefully years.
Philanthropy. Some people engage in wealth transfers as a way to give back to their communities, or support causes, they are passionate about. These charitable contributions can have a significant impact and even help address social issues.
Financial assistance. Wealth transfers also can be used to provide financial assistance to family members who may be in need. By gifting money or assets, you can help loved ones achieve their financial goals or overcome financial challenges.
Why Wealth Transfers are Important
Wealth transfers can have a profound impact on individuals, families, and society. Having an understanding of the large-scale implications of wealth transfers can potentially help you decide on planning one yourself.
Income inequality. Wealth transfers can contribute to income inequality by concentrating wealth in the hands of a few individuals or families. This disparity in wealth distribution can have social and economic consequences, affecting access to opportunities and resources for marginalized communities.
Intergenerational wealth. Wealth transfers play a key role in shaping intergenerational wealth dynamics. Inherited wealth can provide a significant advantage to heirs, enabling them to pursue education, start businesses, or invest in assets that can further grow their wealth.
Economic stimulus. Wealth transfers can stimulate economic activity by injecting money into the economy through spending, investments, and charitable donations. This can create jobs, drive consumer demand, and support local businesses.
Social impact. Charitable contributions and philanthropic efforts resulting from wealth transfers can have a positive social impact by addressing social issues, supporting vulnerable populations, and funding important initiatives in areas such as education, healthcare, and environmental conservation.
Final Thoughts
Wealth transfers can play a vital role in shaping the prosperity of both individuals and society at large. Whether via inheritance, gifting, charitable contributions, or estate planning, these transfers have significant implications.
By being more informed about wealth transfers, you can be more intentional about your own potential decisions. And in the process, you can help create a more equitable and prosperous future for yourself and future generations.
TwinStar Can Help with Wealth Transfers
Interested in wealth transfers? A team of experienced financial advisors can help you plan every step of the way. With us, you’ll have extra financial confidence knowing that your assets will go where you want them to.
Contact the financial services team at 800.267.4363 or visit our TwinStar Financial Advisors page for more information.