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It’s Time To Plant a Tree

“Taking advantage of this near-term opportunity involves creating an estate planning strategy that will benefit others over many years to come.”

There’s a saying attributed to Warren Buffet that goes, “Someone's sitting in the shade today because someone planted a tree a long time ago.” What appeals to me most about this quote is the motivation behind planting a tree: It’s not an act that will benefit you right away, or perhaps even in your lifetime – but someone, someday, will be grateful that you did.

When done well, wealth management incorporates that same generosity of spirit and long-term intergenerational thinking. It’s the reason a 529 savings plan opened upon the birth of a grandchild can blossom into a college tuition 18 years later. But wealth management also requires navigating personal and financial currents over the course of years, even decades, to put yourself in a position to achieve what matters to you the most.

Two of those currents are intersecting right now, and in a way that hasn’t yet come into focus for many families:

  1. The first is the unprecedented amount of money in motion. Until recently, the baby boom generation was both the largest living adult generation in history and the most prosperous, controlling 56% of the country’s $140 trillion in wealth. With the youngest baby boomers passing age 65 by the end of the decade, we are witnessing perhaps the biggest transfer of wealth in this nation’s history as the wealth from this generation flows to the next.
  2. The second current isn’t so much generational as it is economic. In December 2017, President Trump signed into law the Tax Cuts and Jobs Act, legislation that (among other things) increased the gift and estate tax exclusion amount – that is, how much you can transfer, in life or at death, without incurring gift or estate tax – from $5 million per individual in 2017 to nearly $13 million today. But this provision is scheduled to sunset after 2025. Barring a legislative extension, this exclusion amount will revert on January 1, 2026, to levels more in line with what they were prior to 2017.

The confluence of these two events gives families with significant wealth a once-in-a-lifetime opportunity to transfer it to future generations free from gift or estate tax. But understand that this window might be closing. Taking advantage of this opportunity will involve working with a planning team to create a multiyear, multigenerational estate planning strategy – and not waiting until the last minute to do so.

Don’t Be Afraid To Take the Initiative

If the need and opportunity for significant wealth transfer are there, what’s keeping families from putting a forward-looking estate plan into place? Probably the same thing that causes 70% of high-net-worth families to see their wealth dissipate within three generations: family dynamics. Especially in the United States, discomfort and social mores can stifle family discussions on wealth – and when it does, that inability to have a meaningful conversation around the family’s finances often leads to misplaced assumptions, misunderstandings and decisions that don’t consider the full picture.

So how can you overcome the odds and take advantage of this impending opportunity? Our friends in Baird Family Wealth have been guiding families with issues like these for decades, and they have written extensively on how families can come together around their valuescommunication and what defines a legacy. Their experience and guidance speak for themselves. One piece of advice I would add is that when considering these discussions, don’t hesitate to take the initiative. Your family, like many others, is likely relying on you for your leadership in this very important area. The longer you put off these conversations on transferring wealth and building a legacy, the fewer options you leave yourself and your family. Your Financial Advisor has the expertise, resources and relationships to facilitate these conversations and help you plant a tree that can grow strong for future generations.

The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action. The views and opinions expressed here are those of the speaker and do not necessarily reflect the views or positions of the firm.