It’s good to be young. Even better if you have rich parents. But they’ve got to act quickly: If Democratic nominee Kamala Harris is elected in November—which many polls predict will happen—ultra-wealthy parents will have a much harder time passing down their massive wealth to their kids without strings attached.
A ‘Great Wealth Transfer’ has long been predicted by industry and tax pros, and many have estimated that around $90 trillion will change hands from boomers to millennials and Gen Zers in the coming decades.
As it stands today, wealthy people can give their kids or beneficiaries about $13.6 million without an estate or gift tax. (Every year, that number has ticked up, thanks to the yearly inflation adjustment.) But that benefit, which is part of former President Donald Trump’s 2017 Tax Cuts and Jobs Act and doubled the allowable benefit amount from the previous administration, is set to expire on January 1, 2026—at which point exemption will likely drop back to its previous limit.
In other words, instead of $13.6 million in gifts being free and clear, “the unified estate and gift tax exemption amount will revert back to where it was in 2017, adjusted for inflation—around $7 million,” Jessica Majeski, a Northwestern Mutual wealth management advisor, told Coins2Day. For the ultra-high net worth individuals and couples, she said, “the time to do something is now.”
(Trump, if elected, would likely extend the Act; Harris, who has a hallmark policy of greater taxes on high earners, is set to overturn it.)
“People are saying, ‘Hey if we get the wrong president or congress, they’ll drop that $14 million limit to $7 million,’” Patrick Simasko, a Michigan-based lawyer and financial advisor, told Coins2Day. “They think, ‘Let’s give away $14 million now before the law changes.’ It’s an absolutely viable plan—it’s a good plan.”
The real ramifications, Simasko says, will come when kids of wealthy parents receive a sudden windfall but no knowledge of how to invest it. For ultra-high net worth individuals (UHNWIs), Simasko says, the risk is “giving it to kids who are knuckleheads” who might squander it. Before jumping to beat the sunsetting deadline, he says, ask yourself if you may need it in the future, and if you trust your kids to use it wisely.
“I would imagine if you have this amount of wealth, you’re working with your kids and helping them manage it wisely,” he says. “Ideally, they’re investing it in their own name, not yours.”
Nonetheless, his advice to anyone in the UHNW category is to make a careful, informed decision about whether to join the craze. “Sit down with your financial planner, estate lawyer, and CPA, and say, ‘Okay guys, I’m paying you. What’s your recommendation?’” Simasko said. “Just a financial planner will be a different conversation than with just an estate planner.” The beneficiaries should be involved, too, if they’re expecting to get that $13.6 million while it’s free and clear. They’re the most important people to check in with, Simasko added. “Sit down with your kids and ask them how they’ll invest it.”
Paul Karger, co-founder and managing partner of Boston-based wealth advisory firm TwinFocus, says the richest of the rich have known about the sunsetting for quite some time, and it’s less of a mad dash than the media might be making it seem.
“ I can tell you, we work with families worth over $100 million, and they’ve been thinking through this gifting opportunity for quite some time,” Karger told Coins2Day. “Nobody’s shotgunning it. Most of the documents have been drafted. The receptacle vehicles—the trusts—have already been set up for several years.”
If families haven’t already exhausted their lifetime gifts, “they’re ready to move.” But TwinFocus, which manages the assets of some families who haven’t totally exhausted their gifts, are enacting a wait-and-see approach to the election before rushing to make a move.
As with any major financial decision, there’s never a shortage of reasons to pump the brakes and think carefully. For instance, “maybe you haven’t yet fully decided who should be the beneficiary, or what the structure should be,” Karger said. “Maybe you decided you don’t have enough liquidity to give a gift; there are nuances to giving non-liquid gifts.”
Plus, when it comes to tax rates, Karger, who’s spent his career in the business, says there’s always the chance another unexpected change might follow soon. “The pendulum swings on this stuff, who knows what’ll happen in another few years, in a new administration,” he said. “They may lift the lifetime extension again.”
Even so, there’s much less of a downside to making a move this year. “If you have a balance sheet that will let you meet your standard of living with your remaining assets, there’s no reason not to make the gift now,” he said. “If you’re going to make gifts, you want to do it as early as possible, so the assets can appreciate.”
Like Simasko, Karger emphasizes the importance of ensuring beneficiaries are in line with benefactors’ expectations and guidance. “We typically advise our clients to have conversations with their kids, so the kids can develop their own plan around assets,” he said. “But it’s a delicate dance, because parents may feel that kids aren’t ready to learn about the existence of these assets.”
Majeski, the Northwestern Mutual advisor, often gives clients an adage: “Don’t let the tax tail wag the dog.” That stems from her witnessing, over the years, “so many people prioritize tax savings above all else.” A critical error, because the tax savings achieved may be far outweighed by the time and effort it took to accrue them.
But in today’s case “it’s prudent for UHNW families to consider what this opportunity could mean to their planning before the window closes.” Majeski encourages meeting with estate planning attorneys soon; it’s a complicated process, and advisors’ calendars are quickly filling up.
Yet despite parents’ and grandparents’ careful attempts to get the money into their beneficiaries’ hands safely, many of those young people might actually be underwhelmed. That’s because the cost of living has become so untenable that they’re actually relying on the inheritance for their expenses, making it more of a necessary infusion than a windfall. Nonetheless, experts say the Great Wealth Transfer is imminent, and it’ll make hand-wringing millennials the richest generation in history.
