Are YOU prepared for a $700,000 inheritance? Americans expect to be paid huge sums of money over the next decade — but Gen Z and Millennials complain they don’t know how to manage the money
Adults seeking an inheritance over the next decade expect to receive an average of over $700,000, a new report shows.
Millennials and Generation Z are advocating the so-called “Great Wealth Transfer” where their baby boomer parents will give away $53 trillion by 2045.
New research from life insurer New York Life found that around 15 percent of the 4,437 adults surveyed expect to receive some of that wealth over the next decade.
However, the question arises as to whether the younger generations can handle the windfall.
Of those who expect to inherit in the next decade, just 21 percent of Millennials and 18 percent of Gen Z said they felt “very comfortable” with the means.
Adults seeking an inheritance over the next decade expect to receive an average of over $700,000, a report by life insurer New York Life found
Suzanne Schmitt, head of financial wellness at New York Life, told Fortune, “Millennials, and now Gen Z, grew up in the midst of global and financial turmoil.”
“These two cohorts witnessed economic changes in their formative years and may be more risk-averse when it comes to financial habits than their predecessors.”
Across all generations, the average recipient reported expecting an inheritance of $738,724.
About 58 percent said they expected cash, 43 percent expected the wealth to come from real estate, 28 percent expected to receive stocks and bonds, and 24 percent expected life insurance proceeds.
Another 21 percent expected to receive jewelry, while 14 percent would inherit a pension.
But more than half feared their funds would be hurt by inflation, which slowed to 3 percent this month after peaking at 9 percent last summer.
About 37 percent of those who anticipate getting lucky said they would use it to pay off debt. Another 35 percent said the funds would increase their retirement savings, while 26 percent intended to pass them on themselves.
In addition, the report also found that households are still plagued by financial fears.
One in three respondents said their credit card debt had increased over the past year. On average, their debts totaled $8,431.
Generation X — those between the ages of 43 and 58 — had the highest credit card debt at $9,434.
Baby boomers are expected to spend $53 trillion by 2045 –
Separate data show that generation
The cohort — often referred to as the “forgotten generation” — is currently in the midst of its own financial crisis after research showed they had saved an average of just $40,000 for retirement.
Data from the National Institute on Retirement Security (NIRS) found that Generation Xers struggled with higher student loan debt than baby boomers born between 1946 and 1964.
In addition, they have experienced several economic crises and experienced lower wage growth than the generation before them.
The cohort is also known as the “sandwich generation” who are currently caught between caring for their children while simultaneously caring for their parents in old age. This can lead to many – disproportionately female – members retiring from working life.
Dan Doonan, executive director of NIRS, said in a statement: “The generation
“Most Gen Xers don’t have a retirement plan, they’ve been through multiple economic crises, wages aren’t keeping up with inflation, and costs are rising.”
“The American dream of retirement will be a nightmare for too many Gen Xers.”
In this way you avoid a tax shock on your inheritance
Giving and living at the same time
Under IRS rules, parents can gift up to $17,000 per year to an unlimited number of people with no state gift or estate tax consequences.
And spouses can also donate the same amount—doubling the amount a couple can pass on.
This is especially helpful when an individual is close to achieving the lifetime gift tax exemption, which is $12.92 million per person or $25.84 million for a couple. Money in excess of this is taxed at 40 percent.
Thanks to the Tax Cuts and Jobs Act (TCJA), the $5.49 million per person allowance was increased significantly in 2017. However, this is only a temporary law that will only be in effect until 2025.
Give your home as a gift – and live in it at the same time
By creating a lifetime inheritance, you can gift your property knowing that you will remain a “life tenant” – meaning you can live there until you die.
You’ll also remain responsible for paying mortgage debt, property taxes, and home insurance in the meantime.
This effectively streamlines inheritance and avoids probate testing – the legal process of proving a will.
Set up a trust
In turn, leaving your money in a will can trigger a costly and time-consuming probate process.
In addition, by placing your money in a trust, your heirs may be entitled to a “step-up” interest in real estate.
On a step-up basis, the value of the inherited assets is adjusted to the current market value – helping to reduce capital gains tax in the future.
Capital gains tax is a levy levied on the amount that your assets have appreciated in value over time.
For example, if a parent bought a property for $20,000 and its value has risen to $500,000 today, after their death the property will receive a “restocking basis” that reflects its true value.
If the heir then sells the property for $700,000, only the $200,000 increase in value is taxed. Without the “step-up” rules, they would have been taxed on the $680,000 in value since their parents first bought it.