They’re soaring, flying, gliding and scoring. Men and women from across the globe are competing in Sochi for the gold. My athletic glory days may be past, yet I’ll root the youngsters on. However, I’ve got gold to pass on to my heirs.
Baby Boomers are projected to transfer between 12 and 40 trillion in wealth to Gen X and Y. The 40 trillion reflects many pre-2008 Financial Crisis estimates. The 12 trillion reflects potential revisions for lost wealth or joblessness. Nevertheless, two take aways are (a) younger generations stand to be prudent and conservative accumulators of wealth – skeptical of fast and easy money, and (b) it’s still a ton of money.
So what do you do with your inheritance? And on a parallel course, what fine-tuning is appropriate for you Boomers?
Settle the estate. Your parents may have designated you and your siblings to help steer their ship and settle their estate – executor, trustee, and guardian. I remember sitting in my father’s garage as one of the three Loy boys a little over two decades ago. Our father had passed and we had the jobs of settling and distributing his estate. It involved legal and accounting responsibilities, and the personal issues of fairly and equitably slicing the pie. Fortunately, we got along and the jobs were well done. Others aren’t as fortunate. Some say blood’s thicker than water until it comes to money. How well do you work with your brothers and sisters? Will you seek the advice of professional advisors in dotting “I’s” and crossing “T’s?” And how can those third parties help you foster strong family bonds, rather than suffer division?
Outright distribution of assets. Will your inheritance be outright (receipt of assets or a check) or in trust? Some assets transfer outright by the will (e.g. family heirlooms), ownership (e.g. joint banking accounts), or beneficiary designations (e.g. retirement accounts). Are you prepared to take on complex assets (e.g. a business), what if Mom and Dad named sibling #2 as joint owner on all their bank accounts because he or she lived the closest, and do you liquidate your share of your father’s IRA (and pay the taxes) or rollover to an inherited IRA account (tax deferral) and take required minimum distributions over your lifetime? Do you keep the investments “as is” (they were good enough for my folks, or refuse to generate taxable capital gains – remember investment markets are indifferent to your ‘cost basis’… the future performance of an investment, good or bad, is going to be the same whether you own it at $1 or your neighbor at $100 per share), or reposition according to your situation? In lieu of writing a check to your favorite charity, how about gifting an appreciated asset?
Distribution in trust. You may receive car keys and a check, yet the bulk of your inheritance may come in trust. There will be strings attached. Perhaps you’ll receive the income from the trust assets each year, however, the principal might be parsed out periodically (e.g. a third at age 35, half at 40 and the balance 5 years later) or it’s reserved for your future kids. It isn’t necessarily because they don’t trust you, rather they’re concerned what might happen to you – a marriage gone wrong or litigation from a car accident. Situations arise from the definitions of “income” and “reasonable expenses for health, education and welfare” (what’s “reasonable”). Competing interests may arise if there are multiple trust beneficiaries – income beneficiaries want maximum income generation yet the residual beneficiaries say heck with income, we want maximum growth. Fiduciaries (trustees, investment advisors, etc.) negotiate these minefields. Get legal and tax advice from experts.
Bottom line, be a good steward of the treasure you’ve inherited. Likely your folks worked hard and sacrificed for that money. The fire red headed Olympic racer Katie Uhlaender currently stands in skeleton medal contention. Whether or not she stands on the medal podium, she wears her deceased father’s 1972 National League championship ring around her neck. She doesn’t ride alone.