I’m a Financial Advisor: 3 Mistakes Rich Boomers Make When Passing on Wealth


We’re in the midst of the “great wealth transfer” — over the next 20 years, baby boomers are expected to pass approximately $72 billion in wealth to heirs that are members of Gen X, millennials and Gen Z. Passing along generational wealth can be a nuanced process, especially for those who have a lot of money to transfer, so it’s not surprising that some missteps are often made along the way. Dan Sudit, partner at Crewe Advisors, a $1.3 billion registered investment advisor firm, works with many high-net-worth boomers, so he has seen some of the most common mistakes firsthand.

GOBankingRates spoke with Sudit about the types of mistakes wealthy boomers make when passing on generational wealth. Here are some common mistakes to avoid.

Focusing More on Transferring Wealth Than on Current Needs

Many wealthy boomers want to transfer assets during their lifetimes, but this sometimes comes at the detriment of their own financial needs.

“Sometimes, people will have income-generating assets that may be appreciating, but also provide significant income to meet their current lifestyle needs. They’ll see those assets as something that they can immediately transfer generationally, but the adverse effect is it compromises the income that they currently need,” Sudit said.

A common example would be a rental property that a boomer begins selling off to create more wealth for their heirs.

“If you’re relying on that [rental] income to meet your current cash flow needs, then you’re kind of shooting yourself in the foot,” Sudit said.

The better alternative would be to sell off assets that may be appreciating, but are not generating income.

Not Taking Taxes Into Account

If boomers do not transfer wealth strategically, they could be saddling their heirs with a huge tax burden.

“[Another common mistake] is where people have very low-basis stock or interest in a business or what have you and they’ll transfer it,” Sudit said. “Now, that next generation is going to suffer significant tax consequences when they sell it, versus saying, ‘Well, maybe I’ll hold onto those assets, and if upon my passing, there’s a step-up in basis, then it can be transferred to that next generation.’”

An example of this would be a primary residence.

“There are a lot of people that paid $30,000, $50,000 for their homes that are worth millions of dollars today,” Sudit said. “And they say, ‘Why don’t I transfer that to my kids? That is not an income-producing asset.’ That’s true — it is an appreciating asset. It’s a great asset to transfer to the next generation, but upon their passing, the kids don’t get a step-up in basis in mom and dad’s house. Chances are they’re probably going to sell it, and they’re going to have significant capital gains in their generation, rather than having more efficient planning.”

Not Preparing the Future Generation To Handle Their Inherited Wealth

Talking about money can be uncomfortable, so many boomers avoid it.

“When it comes to money, boomers still don’t know how to have those conversations,” Sudit said.

However, not discussing money and how to best handle it can set future generations up for failure.

“[For example], if all of a sudden [a child] gets a lot of money from [their] parents and [they] go and buy a really expensive house, [their] property taxes are going to be high, maintenance is going to be high,” Sudit said. “[The child may find themselves in a position where they do not] have the income on a going-forward basis to manage that expense [and] have created a hole where [they’re] house-rich, cash-poor and don’t have the wherewithal to maintain that lifestyle [they’ve] created.”

Sudit recommends that boomers have open and honest conversations with their heirs early on, even if they don’t go into specific details.

“You don’t have to get into specifics, you don’t have to get into dollar amounts, what the assets are, where they are, but it is an indoctrination process into what both stewardship is and what the family values and expectations are,” he said.

In addition to talking about money, he also recommends giving heirs some wealth ahead of time to see how they handle it as a sort of training exercise.

“Sometimes, [it’s] giving kids a little bit of money and seeing what they do with it,” he said. “[For example, tell them], ‘I’m going to give you $100,000 this year for Christmas, but I’m going to pay attention to what you do with it, because it’s going to impact how your mother and I may give you wealth in the future.’ [That can help them determine] how big a handcuff might they choose to put on those dollars.”

The earlier inheriting generations get financial education, improve their understanding and have a hands-on opportunity to manage wealth, the better off they will be.

“[That will] help them become better acquainted and acclimated with both the wealth,” Sudit said, “and some of the cautionary tales that come along with inheriting and receiving wealth.”

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