🔒Multigenerational Shift: Navigating Great Wealth Transfer is a boon for attorneys, estate/investment planners

The Great Wealth Transfer is underway, on track to see an estimated $84 trillion pass from the Silent Generation and Baby Boomers down to younger generations by 2045.

Legal and financial experts agree that ensuring hard-earned money is properly passed down takes more than a will and a way.

Amid the generational shift, attorneys, accountants and financial planners say they are seeing an uptick in new and existing clients who are seeking assistance keeping, managing and eventually passing down their assets. 

Managing wealth in the midst of changing tax laws is the bulk of the work done by attorneys like Alan Parker, chair of the trusts and estates practice at law firm Pullman & Comley.

Lawyers who manage high-net-worth individuals are helping clients get ahead of more generous federal estate and gift tax exemptions that are scheduled to sunset on Jan. 1, 2026.

The 2017 Tax Cuts & Jobs Act nearly doubled the federal lifetime estate and gift tax exemption for an individual or couple, and indexed the exemption level to inflation. 

The current federal exemption amount increased this year to $12.92 million, up from $5.6 million in 2017. The exemption is double that amount ($25.84 million) for a married couple. 

The top federal gift and estate tax rate is 40%.

For the first time this year, Connecticut’s gift and estate tax exemption matches the federal level. That change was inscribed into state law last decade, when Connecticut began to gradually increase its exemption levels to make the state more attractive to high-net-worth individuals eyeing lower-cost states.

Connecticut’s top gift and estate tax rate is 12%.

Parker said back in 2017, when the federal law changed, the year 2026 seemed a long ways off.

“And now it’s just not that long away,” he said. “If these high-net-worth individuals aren't planning their estates appropriately, they may lose out on an opportunity if they don't act before 2026.”

And proper estate planning is a far cry from the days when people drafted wills that they never changed or updated.

It’s important that clients are educated on what assets they have, the rules on income and wealth transfer, and what they want to do with their money, Parker said.

Asset management and transfer is most often set up through an outright gift, irrevocable trust or estate tax planning, legal experts said.

Changing laws, more needs

B. Dane Dudley is a partner with law firm Day Pitney and chair of its private client practice. 

Day Pitney has more than 300 attorneys in 13 offices across six states and Washington, D.C. That includes more than 90 lawyers in the firm’s private client practice, which focuses on domestic and some international estate planning and state trust administration work.

The growing need for estate planning attorneys comes from a combination of aging clients and changing laws, Dudley said.

There can be a surge in client activity and growth when new laws are proposed, about to go into effect or scheduled to sunset. 

For example, Day Pitney was busy in 2012, when clients were trying to get ahead of potential federal estate and gift tax changes that would have increased rates and lowered the exemption level from $5.12 million to $1 million. 

Those anticipated changes, which never occurred after Congress stepped in, drove many clients to make significant lifetime taxable gifts in 2012, for fear of losing out on the higher exemption levels and lower tax rates. 

“With the growth of new wealth, it happened to be a good time for some people to do some planning, and that was a pretty big bubble,” Dudley said. “They wanted to take advantage of the exemptions that they thought might go away.”
 
The 2020 pandemic also caused an uptick in estate planning work, he said, with clients having more time on their hands during lockdown and heightened health concerns.

Managing the transfer

Another aspect that attorneys often deal with in estate planning is determining how much control clients want over their assets; who will act in their best interests if they can’t oversee their finances; what kind of protections they want to have for their families; and flexibility over asset management.

Attorneys are also seeing growth in the number of clients who have more than enough wealth to ensure there is plenty for their children and grandchildren, and want the rest to go to charitable causes.

“That number is growing, especially when there's really significant wealth, … and all those things are relevant in everyone's estate plan, some of which are tax-driven, but mainly it’s property law and family dynamics,” Dudley said.

The planning process can take as little or as much time as people want, he said. Simply passing everything to children is one of the simplest and most straightforward ways to plan, but often leaves the recipients vulnerable to creditors or tax burdens.

Parents sometimes worry about their children responsibly handling newfound wealth, so they arrange for a more controlled asset allocation, such as a restricted trust.

“All those questions have to be answered, and it takes time, and it takes self-awareness and soul-searching to figure out what's the best plan,” Dudley said, adding there are usually several advisers involved with high-net-worth clients, including an accountant, investment adviser and estate planning lawyer.  

No set rules

Eric Hogarth is a partner with wealth management and retirement planning firm Johnson Brunetti, which has 17 certified financial planners between six offices in Connecticut, one in Boston, and one in Atlanta. 

The main conversation he was having with clients as they approached retirement age was, “Will I have enough?” Many of those clients are now in their 70s and 80s, and their concerns are shifting to protecting their money from long-term health risks, and providing some money for their children.

They often feel they didn’t save their money to make their children rich, but they didn’t save it to just pay taxes on it either, so asset protection is a big part of the job for an estate planning team.

Hogarth said he’s seeing more clients gift money to their children while they are still alive instead of after they die.

Others who are “first-generation” wealthy, and saved their money rather than inherited it, can be apprehensive about giving it to their children, wondering if it could harm them as much as help.

He’s heard of many inheritances getting lost, sometimes in a matter of months, not because the younger generation is bad with money, but “because they are making mistakes.” 

They might get an inheritance that was not set up properly, and upon their parents’ death, the windfall triggered a 50% taxable event, meaning they lost half the money to taxes, “and they just didn’t know that was going to happen,” Hogarth said.

Hogarth said he encourages clients to remember, “It’s their money and there are no set rules of what they have to do with it. Do what you want to do. Have these conversations and set it up to do what you want to do.”