Money Management

The greatest wealth transfer will soon take place. Read on to find out what boomers and millennials will need to prepare for. 

As the baby boomer generation continues to age, they will inevitably pass on their wealth to the next generation. Studies suggest that millennials will inherit an astounding $68 trillion in the coming years, making them the wealthiest generation in history. While this may be great news for some, it also comes with significant tax implications. Inheritance taxes can have a substantial impact on the amount of money people receive from their loved ones.

The greatest wealth transfer in history

Baby boomers (born 1946 to 1964) are worth 12 times more than millennials (born 1981 to 1996), who are worth $100,000. The average boomer worth is currently worth $1.2 million. Their wealth is estimated to grow to $68 trillion by 2030, which millennials are expected to inherit. According to another study, by 2045, younger generations will inherit a whopping $84.4 trillion in wealth over a 25-year period. Of that amount, millennials are expected to receive $72.6 trillion, with the remaining going to charities.

This transfer could be the biggest in human history, but some doubt its importance. Experts predict that many boomers are retiring with debt and are using up their assets while in retirement. Regardless, many experts agree that there will be a massive wealth transfer. In addition to baby boomers being 10 times wealthier than millennials, millennials in the U.S. earn 20% less than boomers did when they were young adults. As a result, the gap between the two generations has nearly doubled in the past 20 years.

What are estate taxes?

Estate taxes are imposed on the transfer of assets after someone passes away. In the United States, these taxes are not imposed on every estate. Only estates valued above a certain threshold are subject to taxation. The current threshold for estate taxes in 2023 is $12.92 million and this figure doubles to $25.84 million estates for married couples. If an estate is valued below this amount, there will be no estate tax due.

Estate taxes are paid by the estate of the deceased person, not the beneficiary. When an individual passes away, the executor of the estate is responsible for filling out the estate tax return and paying the tax. This means the estate of a deceased person will only be required to pay taxes on the portion that exceeds this threshold.

How do estate taxes work?

Estate taxes are a tax on all assets owned by an individual at the time of death. These can include real estate, stocks and bonds, jewelry, cash, and other valuables. The percentage of estate tax charged ranges from 18% to 40% of the total value of the estate. For 2023, the federal estate taxes max out at 40% for taxable amounts greater than $1 million, which can take a big bite out of your bank account!

For example, let’s say your estate is valued at $15.5 million in 2023 and the expenses incurred before death, such as medical bills, funeral costs, etc., totaled $500,000. You would subtract that amount, which is known as the net estate. That means your total taxable estate is $2,080,000 ($15.5 million − $500,000 − $12.92 million threshold). Since the taxable amount is over $1 million, it is subject to the 40% tax rate. So the total taxes you owe would be $832,000 ($2,080,000 x 40%). The after-tax value that beneficiaries will inherit is $14,168,000.

Knowing the amount of estate tax due can help individuals plan for the future and ensure that the assets they intended for their heirs are indeed received. The federal government is responsible for levying the estate tax, but it’s important to note that some states also have their own rules and regulations.

Don’t forget about state inheritance and estate taxes

Some states also impose their own estate and inheritance taxes. Maryland is the only state that has both an inheritance and estate tax. These 12 states have an estate tax: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia.

Estate taxes are taxes on the value of a deceased person’s assets after their debts have been paid. Some states, such as Maine, don’t impose an estate tax on the first $6.41 million in 2023 of an estate. For amounts above that, Maine taxes at rates from 8% to 12%.

Five states (Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania) have only an “inheritance tax.” This tax is on what beneficiaries receive from the estate. Kentucky taxes inheritances at up to 16%. Spouses and certain heirs are typically excluded by most states from paying inheritance taxes.

If you live in one of these states, it’s important to understand the rules and regulations surrounding these state inheritance and/or estate taxes. These taxes are separate from federal estate taxes and can be complicated. By staying informed and proactive about estate taxes, you can minimize what you pay to protect your loved ones and assets.

Steps you can take to save on estate taxes

When it comes to estate taxes, nobody wants to pay more than they have to. Luckily, there are a few steps you can take to keep more in your savings account. One strategy is to gift money to your loved ones while you’re still alive. By taking advantage of the annual gift tax exclusion, you can give up to $17,000 per person without incurring any taxes.

Another tactic is to establish a trust to hold your assets. By placing your assets in a trust, you can ensure they’re passed down to your heirs without being subject to estate taxes. You may also want to consider using a charitable trust to donate a portion of your estate to a charity of your choice, which can help reduce your taxable estate. While these steps may require some planning and preparation, they can ultimately save you and your family a significant amount of money in the long run.

Additional steps will most likely require professional help. Estate and inheritance taxes are complicated, so consult with a financial advisor or estate planning lawyer to ensure you understand how these taxes may affect you and your family. In addition, unless Congress makes 2017 Tax Cuts and Jobs Act (TCJA) changes permanent, the exemption will revert back to the $5.49 million exemption (adjusted for inflation, around $6.2 million) after 2025. It’s important to continually update your estate plan to reflect the current laws.

With millennials set to inherit $68 trillion, it’s important to understand how estate and inheritance taxes can impact the amount of money they receive from their loved ones. However, for the majority of Americans, estate taxes will not be an issue. Only estates valued above $12.92 million are subject to taxation. Some states also impose their own estate and inheritance taxes, so it’s essential to do your research if you live in one of these states. It’s always a good idea to consult with a professional like an estate attorney to make the most out of your inheritance.

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Dave Ramsey recommends trying to handle some repairs and upgrades yourself. Here’s what you should keep in mind. 

Selling a house can be really expensive. You need to pay for the real estate agent’s commission, any repairs the house needs, closing costs, and a whole host of other expenses associated with closing the transaction. And, of course, once all that’s done, you’ll need to pay off any remaining balance that’s due on your mortgage loan.

You hopefully want to be able to do all that and end up with at least some money to put in your bank account or to put down on the purchase of a new home. That’s why it can be helpful to cut costs when possible. Finance expert Dave Ramsey has some suggestions for doing that, including these three tips for reducing your expenses as a home seller.

1. DIY some repairs

Ramsey’s first suggestion is “tackling home projects yourself — DIY-style.” He suggests you can make selling your home cheaper if you landscape, upgrade the carpentry, or repaint, all without hiring a professional.

This advice can make sense, depending on the circumstances. If you’re skilled at home improvements and your house is the most dated one in the neighborhood, DIYing some updates can pay off.

But, the reality is, most improvement projects don’t provide a very good return on investment — especially if they aren’t done up to a professional standard because you’re trying out a DIY project for the first time. You may be better off not sinking the money into making these changes and just pricing your house a little lower.

2. Reduce moving costs

Ramsey’s next suggestion is to reduce moving expenses, which he says you can do by decluttering, collecting free packing boxes from stores, and asking friends to help you out.

His advice to declutter here is great, since the less stuff you have, the less you must move. Plus, if you declutter your house, it may show better so you may sell it faster. And if your friends don’t mind, taking advantage of free moving help is definitely a money-saver.

Asking for boxes isn’t always effective, though. I tried this with a past move and most of the boxes I got were so small that it would have been a huge hassle to move so many tiny boxes.

3. Negotiate with your company if you’re moving for work

Finally, Ramsey advises getting your employer to help you pay for a move if you are relocating for a job. This is also an easy call. If you can negotiate with your company and get it to cover costs for you, you absolutely should. Why pay for a move if someone else will foot the bill?

Of course, this isn’t possible in all situations, but if you have the chance to ask for money to defray your moving expenses, then do that ASAP.

Ultimately, you’ll need to decide which of these tips make sense for you. Remember, though, a home sale comes with a lot of costs. It’s best to be prepared to pay them out of your savings if you won’t generate enough profit to cover them after repaying your home loan and making a down payment on your new place.

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Not every hobby needs to be a side hustle. Read on for inexpensive hobbies that can be affordable to start and enjoyable to maintain. 

It can often feel like social media has ruined the affordable hobby. If you don’t have top-of-the-line gear and don’t want to turn your little hobby into a multimillion-dollar side hustle — well, what are you even doing?!

Well, you (and your bank account) can relax. I’m here to assure you that your hobby can stay a hobby — and to assure your finances that it can stay affordable, as well.

Hobbies should be about relaxing and de-stressing, not about the hustle. (We get enough of that nonsense as it is.) You don’t need your hobby to be profitable. You don’t even need to be good at it. And it definitely doesn’t have to be expensive.

In that spirit, here are some ideas for hobbies you can not only start affordably — you can start them just by going to the dollar store.

1. Painting

Painters in movies and on TV tend to have these huge studios, with an endless array of tubes of paints and brushes, stacks of canvases, and a veritable smorgasbord of fruit bowls.

You don’t need any of that. You don’t even need classes, not in the era of YouTube.

Instead, hit your local dollar store (or Walmart, or Joann’s) and pick up the basics. You can get little bottles of acrylic paint for less than $1 each. You’ll want these colors:

Red BlueYellowBlackWhite

From there, you can make just about any color you want, simply by mixing a little of this and a little of that. Add in a paintbrush, and now all you need is something on which to paint. You might be able to snag some tiny canvases or a pad of thick paper from the dollar store. For an eco-friendly alternative, use old delivery boxes and/or packing paper.

2. Drawing

This is quite possibly one of the simplest hobbies to start. Arguably the most expensive aspect to learning to draw is taking classes, and with so many online tutorials — and full-blown courses — at your fingertips, you don’t even need the lessons.

A package of regular No. 2 pencils shouldn’t cost much more than $1. If you want to get a bit more serious, you can get a package of pencils designed for artists that come with varying weights (darknesses). Or tap into your whimsical side with a dollar-store pack of colored pencils.

Heck, you could even go back to basics with some crayons. Coloring books may seem childish, but you’d be surprised how relaxing they can be even as an adult.

3. Gardening

If your gardening goal is to turn your suburban backyard into a money-saving homestead — well, you’re going to need more than the dollar store can give. But if you just want to dabble in getting your hands dirty, you can do so without breaking the bank.

While the offerings tend to be seasonal, your local dollar store will likely have everything you need for a little container garden. You can find seeds, pots, tools, even the soil (though that last bit may be much more affordable if you buy in bulk at the home improvement store). Pair these supplies with a bit of internet research, and you’ll be plucking basil before you know it.

4. Geocaching

Have you ever yearned for a hobby that would let you combine your love of nature with your love of your phone? Here it is! Geocaching is like a giant group treasure hunt. You’ll use your phone’s GPS to track hidden treasure caches. Each cache usually contains a small item or note as a souvenir of your find.

So where does the dollar store come in? You can’t leave the next adventurer empty-handed! Be sure to swing by the store (or, if you have some odds and ends lying about, grab those!) before you go out so you can replace what you find with a treasure of your own.

5. Makeup effects

More than any other hobby on this list, makeup effects is one of those things that can become very expensive very quickly. Once you start getting into molding and airbrushing and other advanced techniques, you’re definitely going to need to start investing some cash.

But that’s for the advanced stuff. Getting started in makeup effects can be dollar-store affordable if you’re willing to stretch your creative muscles right from the beginning. Indeed, you can find everything you need for things like fake blood and gnarly wounds for just a few bucks.

6. Puzzles

In a digital world, the idea of sitting around a jigsaw puzzle has become quite old-fashioned. But it can be a surprisingly enjoyable way to spend a rainy afternoon. You won’t find massive puzzles at the local dollar store — you want Costco for that — but you can pick up something with a few hundred pieces that will make for a manageable project.

The dollar store also has options if you’d rather tackle a different kind of puzzle instead. It often stocks books of sudoku, crossword, or logic puzzles that can be a nice way to keep your mind sharp. Or take a more relaxed approach with a number or word search, which can still help exercise your mind without requiring too much effort.

The best things in life are (almost) free

It’s easy to be discouraged from starting a new hobby by the masses of “experts” all over social media. But don’t feel you need to invest your life savings — and all your free time — into mastering something that’s supposed to be relaxing. Instead, take a few bucks to your local dollar store and see what new adventures you can find.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Brittney Myers has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool has a disclosure policy.

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