The Great Wealth Transfer is coming. Gen X, Millennials, and Gen Z are set to inherit wealth and actively manage it. They have access to information and opportunities to make strategic decisions.
Tax considerations are critical as wealth transfers to the next generation. Younger investors know strategies to preserve wealth, such as tax-advantaged accounts, real estate investments, side hustles, and gifting. They expect guidance from tax advisers on reducing tax liabilities.
New generations prefer integrating technology into financial planning. They expect advisers to use advanced tech to streamline processes and offer data-driven insights. Uncertainty around tax laws adds complexity, especially with estate planning and wealth transfer.
Tax strategies for younger investors
Many provisions of the 2017 Tax Cuts and Jobs Act, including the increased estate and gift tax exemption, expire at the end of the year. Tax professionals must guide clients through these changes by optimizing strategies, maximizing tax-advantaged accounts, and potentially using donor-advised funds.
Proactively using current estate and gift tax exemptions before they expire allows transferring substantial wealth with potentially reduced tax exposure. Techniques like the annual gift tax exclusion or appropriate trust structures can help shield assets from estate taxes. Roth conversions may reduce future taxable income, particularly if higher tax rates are projected post-2025.
Proactive planning now positions individuals to benefit from current opportunities and prepare for potential changes. Providing holistic, forward-thinking planning that addresses the evolving tax landscape is crucial for tax-efficient wealth transfer. Working with financial advisers to anticipate changes helps mitigate risks, preserving wealth across generations.
Advisers can help clients secure their futures by focusing on wealth consolidation, technology integration, and aligning investment strategies with clients’ values. The challenge and opportunity lie in understanding these trends and ensuring advice meets the needs of the new wealth-holders.
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