Millennials and Gen Z are set to inherit the largest wealth transfer in U.S. history, with estimates ranging from $36 trillion to more than $100 trillion over the next few decades. But most of those set to receive that money have never spoken to a tax professional about how to manage it once it arrives.
David Perez, an IRS credentialed enrolled agent who has helped clients document over $1 billion in legal tax savings, said it is, in some respect, up to parents to help their children plan for this transition of wealth.
"Transitional wealth is, in most cases, a taxable event," Perez said. "And so they're not aligned at this time in their life. If the children aren't aware of what's going to happen, then there could be a taxable event, it can take a percentage of that and that would be probably not good for anyone involved."
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Perez said planning ahead can make a significant difference in how much of an inheritance is ultimately kept.
"When we think about planning, we think about taxation could happen either before or after death," Perez said. "And after death there are things like step-up in basis, which means if, for example, you inherit a piece of real estate that your parents owned and you now take it into position as a child or an heir, the value of that real estate goes up to the value at market, which means there's not going to be a gain. You can actually get it tax free. That's why it's one of the best ways to transfer wealth."
Watch our full interview with David Perez in the video player above.
