Tuesday, 27 July 2021

💵 The $68 trillion wealth transfer

July 27, 2021 View online | Sign up

Happy Tuesday. The US is the third most populated country in the world. Can you guess what the overall US population growth, a key economic driver, was in the last decade from 2010 to 2020? a) 7.4%, b) 12.6%, c) 18.1%? Check out the answer in the "Trending" section below.

  • The great $68T wealth transfer & the tax implications
  • Student loans aren't just a Millennial problem
  • Best place to retire? Georgia, apparently


The great $68T wealth transfer & the tax implications

Research approximates that about $68 trillion dollars in wealth will be transferred over the next 25 years or so. This money in question would be shifting mostly from the Baby Boomer generation to Gen X to the tune of about $48 trilly. 

Despite the fact that these are broad estimates, it's no secret at all that the older generations (Silent, Boomer, X) do hold extensive wealth leverage over those under them, and the assets held by those in the eldest categories will have to go somewhere within the next couple decades.

Oh, and there's the taxes

The US currently has a tax code in flux, if you will. After the Tax Cuts and Jobs Act in 2017, we saw the exemption ceiling on federal estate taxes double to where it sits presently, at $11.7 million. 

But is it as simple as passing down $11.7 million to your heirs tax free?

Fundamentals to know*

  • An estate is basically all the money and property a person owns when they pass away. As silly as it sounds, it acts as its own unique entity that can be taxed. 
  • An inheritance is just as you probably guessed it—money, property and other assets that are passed to beneficiaries whether or not the original owner has died.
  • An estate tax is not an inheritance tax, and vice versa. An estate tax is assessed on the estate after the owner's death, before its assets are distributed; while an inheritance tax is imposed on a beneficiary when they receive assets. 
  • Most people don't have to pay an estate tax because the federal estate tax kicks in only once your estate is valued above $11.7 million in 2021. And the portion of the estate that surpasses $11.7 million is taxed at 40% in 2021 (simply put). Considering this high level, the vast majority of estates get passed to beneficiaries without tax implications.
  • And there is no federal inheritance tax.
  • The caveat:10 states also impose their own estate tax, while 5 impose inheritance taxes, and Maryland does both. And inheritance taxes can get extremely convoluted on the state level.

Nevertheless, the overarching point is that the taxes levied on inheritances may not be so favorable in the future as the current administration seeks to make adjustments, and whatever the future may hold even beyond its tenure.

What to know ahead of time

If you're in line to inherit a considerable amount of wealth, congratulations, here's your bill. Seriously though, here are some changes that could and/or will happen in the future that could impact your tax bill.

  • The estate tax exemption is set to sunset in 2025: Planned obsolescence is a part of the tax code too, and in 2025 the federal estate tax exemption is set to return to its pre-2017 level of about $5.6 million, barring further legislative intervention. 
  • The stepped-up basis could become an endangered species: Biden has previously made mention of eliminating one of the most crucial parts of the tax code when it comes to wealth transfers: the step-up in cost-basis. The stepped-up basis allows beneficiaries to claim their inheritance at its present fair market value, eliminating any tax on gains made based on the original owner's investment amount. While this seems unlikely for now, it would be a huge blow to those inheriting investments, such as real estate and stocks. 
  • Leverage certain strategies to better plan how you pass on your wealth: Gifting up to $15,000 per year per recipient, front-loading 5 years of this $15,000 gift into something like a 529 college savings plan for a total of $150K can be done on behalf of both spouses with no gift tax return implications. 

* We covered the inheritance tax topic in a prior edition of The Gist.


Student loans aren't just a Millennial problem

By now, you've probably heard the remark that Millennials should stop going into debt for liberal arts degrees, or any other number of similar comments aimed at them and younger generations in regards to the student debt crisis. 

With the nation's total now at an overwhelming outstanding balance of over $1.7 trillion dollars, did you know that a lot of that debt is actually owned by older generations? Over the last few years, a greater percentage of student loan debt has been accruing with the older generations, with 78.6% of the growth falling in the 62+ age bracket, followed by 42.6% in the 50-61 year old range.

Image source: Bloomberg

The ugly details

Some of that debt is incurred by parents and grandparents who took out loans to help their children and grandchildren, but some of that balance is also denoted for those who went back to school later in life. 

For those who fall into the category of having taken out loans to aid their children, many of them have done so through the "Parent Plus" lending program, which is one of the most profitable government lending programs, and as some would argue, even predatory in some numbers. 

Parent Plus loans charge a lofty 4.22% origination fee for the first disbursement, contrasted with your classic subsidized and unsubsidized federal student loans which carry a 1.05% fee. Student loans will also be tagged with a 3.73% interest rate later this year, whereas Plus Program loans will get hit with 6.28%.

The bigger picture

At the end of the day, none of us would ever blame the motives of those taking out student loans in hopes of securing a better future for themselves and their family. Whether they're an older student going back to school, a parent investing in their children, or just a classical student, the rationale is honest. 

That's all fine and good, but good intentions can still result in a miscalculated decision sometimes, and obviously, the system we have in place could probably use a bit of work. Is it the borrower's fault, or are they just subject to the system we live in? Regardless of how you'd answer that question, it's always wise and prudent to do your due diligence and learn as much as you can before jumping feet first into a financial situation. 

📚 Want to review student loan basics via a bite-sized digestible quiz?


Estate planning made easy

Estate planning can be a daunting task. At Trust & Will, their top goal is to make the process of setting up your will, trust or nomination of guardianship as simple and straightforward as possible.

  • With plans starting at $39, they've got something for everyone.
  • Get a complete and customized Estate Plan online in about 15 minutes.
  • They are rated 4.9 out of 5 stars on Trustpilot.

By giving attention to your future and your children or your beneficiaries' future, you can live more in the present because you know no matter what, your finances are in order and in proper alignment with your desires.

That means your children, pets, assets, future, and legacy will be handled the way you want.

Make sure your family is covered.


Best place to retire? Georgia, apparently

One of the media's most beloved jobs is to create obscure aggregates of subjective, yet relevant data and pile it all together in an attempt to score something based on that. This time, Bankrate decided to try to score and rank the best states to retire in. The winner? Georgia, barely. 

Your very own author and Gist contributor here is a Georgia native, so on a brief personal note from first-hand experience: Sure, it can be a great place to live, but make sure you pick the right place though as it's a vastly diverse state.

The criteria?

It wasn't just the cost of a home that weighed into Georgia taking home the W; if that was the case, West Virginia might be the best place to retire. What weighed into the rankings was a combination of affordability by way of cost-of-living indexes and state tax rates, as well as culture, health, crime rates and even weather. 

That being said, the median home price in Atlanta was just $279,000 in Q1 compared to the national average of $319,000, and outside the perimeter, you can easily secure a 2-3,000 SQ feet home for under $300k.

It wasn't just Georgia that scored well though, here are the other states that rounded out the top five:

  • Florida
  • Tennessee
  • Missouri
  • Massachusetts


Today's Movers & Shakers

  • Aon is walking away from its acquisition of Willis Towers Watson after the US antitrust authorities moved to block it
  • Tesla (+1%) reported a billion in profits, up 10x from a year ago; revenues also beat street numbers. Elon Musk acknowledged that the firm is struggling to get "modules that control the airbags and seatbelts" in Tesla cars
  • F5 Networks (+6%), an enterprise software company, topped profits and revenues expected and sees strong demand
  • UPS (-6%) as domestic revenue was lower than expected; globally, it topped profits and sales
  • 3M (+1.2%) after posting a good quarter
  • Intel (-2.5%) the firm's roadmap as a for-hire foundry is not impressing analysts 
  • GE (+4%) after the firm posted Q2 profits and raised free-cash-flow forecast

This commentary is as of 6:13 am EDT.


  • ANSWER. The overall US population growth was in the last decade from 2010 to 2020 was 7.4%. Interactive: How the U.S. population has changed in 10 years, by state (Visual Capitalist)
  • Another college cancels student debt (Forbes)
  • Finny lesson of the day. Review the basics of estate planning: what is it and should you consider it?

Finny is a personal finance education start-up offering free, game-based personalized financial education, a supportive discussion forum, and simple stock and fund tools (aka Finnyvest).  Our mission is to make learning about all things money fun and easy! 

The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own bosses! Finny does not offer investment or stock advice. The Gist is sent twice a week (Tues & Thurs). The editorial team: Austin Payne and Chihee Kim. Thanks to Ashu Singh for Today's Movers & Shakers.

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