A significant tax incentive is scheduled to expire in 2025, with many wealthy parents rushing to transfer their assets to their children as Kamala Harris gains ground in the polls ahead of the 2024 presidential election. This rush, however, has sparked new concerns over the emotional toll of sudden wealth on children – a phenomenon known as “sudden wealth syndrome.”
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What's Happening?
Currently, individuals can transfer up to $13.61 million tax-free to family members, while couples can transfer up to $27.22 million. But this generous tax benefit is set to expire at the end of 2025 and the amount will likely drop by about half. This change prompts ultrawealthy families to act quickly, moving large sums of money to their children before the window closes.
Wealthy parents are under pressure to provide money to their children as soon as possible because Harris is advocating for more taxes on the wealthy. They are concerned that a Democratic president may implement tax laws that would be less advantageous for them.
But while they’re focused on protecting their kids’ financial futures, they’re also concerned about how suddenly receiving so much money could impact their children’s well-being.
The Risks of Sudden Wealth
Sudden wealth syndrome is a real challenge for people who suddenly get a lot of money. Children who inherit enormous sums or receive unexpected wealth may experience overwhelming anxiety and uncertainty about what to do with all of their newfound income.
Wealth advisors are encouraging families to consider carefully before making these transfers – not just about the tax savings but also about the impact on their children's mental health and future.
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What's At Stake?
According to a report, “Much is often made in the media of millennial and Generation Z heirs, but Generation X will be first in line to inherit from their wealthy parent(s).”
It also says that over the next 10 years, about 1.2 million people worth $5 million or more will pass down over $31 trillion. Almost two-thirds will come from the ultrarich, those worth $30 million or more. Ultimately, around $20 trillion will be passed down from just 155,000 of the richest individuals.
Educating kids about financial responsibility before they inherit a fortune can help them feel more comfortable managing their wealth. Some families are setting up gradual inheritance plans to ensure their kids won't get all the money at once, while others are seeking professional help to guide their kids through this major life change.
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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