Some of my favorite COVID related memes focused on the fierce independence and “can-do” attitude of Generation X, also known as the latch-key generation. While those traits served us well during COVID (we spent our youth practicing social distancing) those traits would be detrimental if exercised during the Great Wealth Transfer. For those unaware, financial analysts predict that the biggest shift in wealth will occur over the next two decades as Baby Boomers die and their wealth shifts to Generation X and to a lesser degree, the Millennials. Those inheriting the wealth will have a tremendous job ahead of them learning to manage and plan for the approximately $84 trillion transfer that’s coming.
What should Gen Xers do after cracking that bottle of champagne and toasting their new-found wealth? You guessed it…create an estate plan! For the lucky ones who expect to receive an inheritance over the next several years, creating a comprehensive Estate Plan is a must. Of course, even for those who don’t expect to be recipients in the Great Wealth Transfer, it makes sense to create a comprehensive Estate Plan. An Estate Plan directs what should happen to that wealth at your death and during your life, if you become incapacitated.
An individual desiring to create a comprehensive Estate Plan should sign a Revocable Trust, Will, Property Power of Attorney, Health Care Power of Attorney, Living Will and HIPAA Authorization. Each of these documents plays an important role in a comprehensive Estate Plan. Let’s examine each document to understand their importance. A Will determines distribution of an individual’s assets upon death, allows the testator to select an individual or company to make the disbursements, and contains any nominations for guardians of minor children. Having a Will prevents the laws of intestacy in an individual’s state or residence from determining distribution of that individual’s assets upon death. If an individual creates a Will that Will needs to go through the probate process, which can be expensive, public, and time-consuming. No Gen Xer wants to make anything public.
To avoid that public probate process, Gen Xers, along with every other generation, should create a Revocable Trust that serves as a Will-substitute and allows avoidance of probate. Keep in mind that even those with a Revocable Trust need a Will, but a special type of Will called the “pour over” Will which serves as a backstop to the Revocable Trust by ensuring that any assets not transferred to the Revocable Trust during life end up there at death by pouring those assets over to the Revocable Trust. By creating and funding a Revocable Trust during your lifetime, you instruct your family how you want your wealth managed during any period of incapacity as well as who you want making those decisions. An individual creates a Trust and names himself or herself as Trustee of the Trust managing the assets for their own benefit during their lifetime. When that person becomes unable to manage those assets for whatever reason, the successor Trustee steps in without court intervention and continues to manage the assets in the Trust for the benefit of the now-incapacitated Trustor. This seamless transition gives everyone direction and provides peace of mind for both the incapacitated individual as well as their loved ones because the Trust is a set of instructions letting everyone know your intentions when you cannot let them know yourself, both during life and at death.
The Revocable Trust and Will provide the foundation for a comprehensive Estate Plan and give the individual signing the documents a way to add a layer of protection to the assets, for example, by delaying distributions to the recipient or by naming a third party to serve as Trustee. Gen Xers will serve themselves well by talking to their parents and ensuring that their parents have planned for this transfer of wealth. They can help their parents by alerting them to personal issues which allows their parents to relay the information to their own Estate Planning attorneys for incorporation into their own Estate Plans.
In addition to the Revocable Trust and Will, a Property Power of Attorney allows the Principal to designate an “Agent” and one or more successors to make financial decisions inherent to the Principal on their behalf during life. The Property Power of Attorney may give the Agent immediate power to make these decisions, even if the Principal is not incapacitated when the Agent is making the decision. Most states also give the Principal the option to make the Property Power of Attorney “springing,” meaning that the Agent’s powers “spring” into action only upon incapacity of the Principal. If anyone refers to the Property Power of Attorney as “durable” that means the Property Power of Attorney continues to be effective notwithstanding the Principal’s incapacity. Any Property Power of Attorney that is not durable prohibits the Agent from acting during the Principal’s incapacity. As the Great Wealth Transfer occurs, each recipient of the wealth needs to ensure that someone has the power to manage it if they cannot.
The Healthcare Power of Attorney allows the Principal to appoint an Agent to make medical decisions if the Principal is unable to make those decisions; however, the Agent cannot veto any medical decision of the Principal. A HIPAA Authorization allows one or more designated individuals to receive information that the Health Insurance Portability and Accountability Act of 1996 mandates be kept confidential. While it’s important to keep healthcare information confidential, people acting on behalf of others need access to this information and the HIPAA Authorization provides that. Many Gen Xers discovered the importance of these documents when their own parents began to have failing health and they were called upon to make healthcare decisions for their parents.
Of course, the Great Wealth Transfer isn’t just about creating documents. The lucky ones who expect to inherit during the Great Wealth Transfer need to have trusted advisors, both legal and financial, to address the unique challenges that inheriting this wealth will bring. Gen Xers need to communicate their needs both to their parents as the shift occurs and to their children when appropriate to help prepare them as well. If you happen to be a member of the Baby Boomers, Generation X, or Millennials, now’s the time to talk to an experienced Trusts and Estates Attorney to understand your options.
Tereina Stidd, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
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