Methods for Lifetime Wealth Transfer
Historical Context: What Has Led to the Rise in Lifetime Wealth Transfer?
More parents and grandparents are setting aside money for their children/grandchildren than ever before. Charles Schwab conducted a study across multiple generations of affluent families (over $1M in investable assets) to compare generational perspectives on wealth transfer to heirs. They found that 97% of Millennial and Gen X parents/grandparents plan to transfer wealth to their heirs during life¹. Whereas only 56% of Boomers plan on doing so¹. The Boomers who do plan on transferring wealth during life, plan to transfer a much smaller proportion of their assets than the younger generations do. This study found that, on average, Boomers plan to transfer roughly 20% of their wealth to their heirs during life and the other 80% at death. Millennials and Gen X on the other hand, plan to transfer roughly half of their wealth during life and the other half upon death¹.
Clearly there has been a generational attitude shift around wealth transfer. Perhaps older generations have a mindset of, “I worked hard for these assets and I’m going to enjoy & safeguard them during my lifetime. The kids will get whatever is left over at the end”. Conversely, younger generations of parents seem to have the disposition of, “If I have excess resources that will ultimately be transferred to my kids, shouldn’t I transfer those assets to them as early as possible? Won’t this money be more impactful for them if they receive it in their 20’s or 30’s than it would be if they received it in their 50’s or 60’s?”.
Neither attitude is inherently right or wrong, they are simply different perspectives forged from different generational experiences.
Americans born in The Silent and Baby Boomer Generations grew up with the lingering memory of The Great Depression. If they didn’t live through it firsthand, their parents probably did. Either through their own experiences, or the stories they heard from their parents, the profound and prolonged economic collapse that was The Great Depression might be a contributing factor to their general hesitancy to transfer wealth throughout life. With no guarantee that another Depression-like event will not happen, it’s certainly fair to have the viewpoint, “wouldn’t it be premature to give my assets away? What if the economy collapses? I prefer the security and peace of mind I have from retaining my excess wealth. Let’s not count our chickens before they hatch”.
Another contributing factor to the difference in generational perspectives might be that older Americans grew up in a time where the American Dream was thriving. There was a strong middle class, home ownership was attainable, and families weren’t as encumbered with suffocating student loan debt. The younger generations are a product of a shrinking middle class, significant barriers to home ownership, and a massive student debt crisis. For example, the median price of a home in 1970 was roughly $23,000².
That equates to about $185,000 in today’s dollars after adjusting for inflation. A house for $185,000… doesn’t that sound nice? Unfortunately, that is not our reality. The median home price in 2025 is about $411,000³. Therefore, after adjusting for inflation, buying a modest home today is 122% more expensive than it was in 1970. Another data point that illustrates the rising cost of home ownership is the median age of first-time home buyers. The earliest data we have for this metric goes back to 1981, in which the median age of a first-time home buyer was 29⁴. As of 2024, that metric has risen to 38 years old⁵.
Essentially, it takes people today an additional 9 years of working and saving to purchase their first home compared to people 40+ years ago.
The cost of a college education has also increased astronomically. In 1970 the average annual cost of attending a public school was roughly $358, while private school tuition was roughly $1,600⁶. This equates to about $3,000/year for public and $13,500/year for private in today’s dollars. Meanwhile, the average cost of college today is as follows: public in-state tuition is $11,600/year, public out-of-state is $30,780, private school is $43,350⁷. This means that the inflation-adjusted cost of attending public school has increased by 286% (in-state tuition) and the cost of private school has increased by 221% since 1970.
These massive price hikes are set against the backdrop of stagnant real wage growth. The median household income in 1970 was $9,870⁸. That translates to about $80,000 in today’s dollars after adjusting for inflation. The median household income in 2023 (the latest data we have) was approximately
$80,600⁹. What does that mean? It means that after adjusting for inflation, the median household in America makes virtually the same amount of money that it did in 1970. There has been no real wage growth for the median income family in the last 55 years. Yet the cost of home ownership and the cost to attend college (two of the main avenues used by prior generations to build wealth and increase earnings potential) has skyrocketed.
Gen X and Millennials were the first two generations that had to contend with these issues (Millennials especially). It’s no surprise then that many Gen X and Millennial parents with excess resources are more apt to transfer those resources to their children during life. They’ve seen firsthand how difficult it can be to get into a home or how debilitating it can be to graduate college with thousands of dollars in student loan debt. These parents view lifetime gifting to children as a way of leveling the playing field in a world that is becoming exceedingly more expensive relative to median wage levels.
Methods For Lifetime Wealth Transfer
Now that we’ve highlighted some historical context and potential rationale for the increase in popularity of lifetime gifting, let’s look at some common methods used to facilitate this gifting.
1. 529 College Savings Plans
529 accounts are tax-advantaged investment accounts that are rapidly becoming the most common way parents save for their children’s college education. 529 plans are administered at the state level. Every state (except for Wyoming) has its own 529 plan. Small components of the plans will vary by state, but the major elements and regulations are the same across all states. It’s important to note that although 529 plans are administered at the state level, 529 funds can be spent on education expenses nationwide. For instance, opening a 529 account in the state of Idaho does not mean that your child must attend college in the state of Idaho.
Most commonly, 529 accounts are opened by parents for the benefit of their children. However, a grandparent could open an account for their grandchild, an uncle could open an account for their nephew, etc. There are no restrictions on who can open an account and who can be named as a beneficiary. The account owner funds the 529 account with cash and then makes investment selections based on the investment choices offered by that state’s 529 plan. Ideally these investments perform well over time and grow to a meaningful sum that the parent can use to fund the child’s education. Sounds great, but what makes the 529 account special compared to other types of investment accounts?
The primary benefit of the 529 plan is that all dividends, interest, and appreciation earned by the investments are tax-free so long as the funds are used to pay for qualifying educational expenses. Additionally, many states offer a state income tax deduction for contributions to their 529 plans. If you open a 529 account for your child when they are born and add to it every year, you’d benefit from roughly 18 years of tax-free investment growth and state income tax deductions. That could ultimately result in tens of thousands of tax savings relative to saving for college using a regular investment/bank account.
It’s important to note that the tax-free benefits only apply if the funds are used for “qualifying educational expenses”. Obviously, most undergraduate and graduate college related expenses are considered qualified. Tuition, room and board, books & school supplies, meal plans, laptops/software needed for courses, and even off-campus housing (subject to certain constraints) are all eligible expenses that can be paid from a 529. Less known, however, is that eligible expenses extend beyond traditional college programs. The cost of attending trade/technical schools and apprenticeship programs are eligible expenses that can be paid from a 529. Additionally, 529’s can be used to pay up to $10,000 a year for tuition costs of private K-12 schools.
The tax repercussions of using 529 funds for anything other than qualified educational expenses can be quite severe. Any investment earnings pulled out of the account for non-qualifying expenses will be subject to ordinary income tax and an additional 10% tax penalty (there are some exceptions to the 10% penalty). These tax penalties have caused some to be hesitant to fund 529 plans. “What if I contribute a significant amount of money to a 529 plan but my child never needs the funds (gets a scholarship, joins the military, doesn’t pursue post-secondary education)? I’ll be stuck with a huge tax bill when I withdraw the unused funds.” Luckily, there are some additional options available to you before resorting to a non- qualified withdrawal from the account.
529 plans allow for the account owner to change the beneficiary at any time. If your child doesn’t use the 529 funds, you could keep the account intact and eventually name a future grandchild as the beneficiary. Although your child didn’t personally use the 529 funds, they still benefit from that investment because they now have a huge head start on saving for their own child’s education. You also have the option to convert up to $35,000 of unused 529 funds to a Roth IRA for your child. There are various rules regarding eligibility and logistics of the 529 to Roth conversion, but the moral of the story is that you can give your child a meaningful head start on retirement savings through this option. Lastly, you have the option to switch the beneficiary on the 529 account to another one of your children that plans on going to college.
2. UTMA Accounts
Adults can open custodial investment accounts for minors under the Uniform Transfers to Minors Act. These custodial accounts are commonly referred to as “UTMA” accounts. The adult funds the account with cash and can choose to invest that cash in any investments offered by the brokerage firm where the account is held. The adult serves as a custodian who holds decision making authority over the account until the child reaches “the age of majority”. The age of majority varies by state, but it’s most commonly set at 18 or 21 (in some states it can be extended to age 25). Once the child reaches the age of majority, the account is automatically converted from an UTMA account to a standard brokerage account. At that point, the adult loses their custodial powers, and the child gains full authority over the account.
One of the most attractive features of UTMA accounts is the flexibility offered when it comes to using the funds. Unlike 529 accounts where funds must be spent on education-related expenses, UTMA accounts can be spent on anything as long as it is for the sole benefit of the child. UTMAs are typically used as long-term investment vehicles to build wealth for the child in the future. These accounts are a great way to accumulate assets to help your child with a future home purchase, wedding costs, education costs, etc. However, you can also use UTMAs to pay for the child’s expenses while they are still a minor. You can use the account to buy their first car as a teenager, pay for K-12 education, cover emergency medical bills for the child, etc.
Another one of the main benefits of UTMA accounts is the protection they provide from the custodian’s creditors. Let’s say a parent is the custodian on their child’s UTMA account. If that parent were to file for bankruptcy, the assets in the UTMA account would be immune from bankruptcy proceedings because they are technically owned by the child, not the parent. This provides a huge advantage relative to saving for your child using accounts held in your own name. Any money you set aside for your children in accounts registered in your own name could be seized in any financial claims against you; depriving your child of the assets that you set aside for them.
UTMA taxation can be a bit convoluted so it’s important to have a discussion with a tax professional to ensure you’re reporting on the UTMA accurately. If the total interest, dividends, and capital gains of the account are less than $1,250 a year, it’s tax-free and no tax return needs to be filed. Any income between $1,250 - $2,500 is taxed at the child’s tax rate (typically 10%) and a tax return will need to be filed; parents can choose to report this income on their own tax return. Any unearned income over $2,500 will be taxed at the parents’ tax rate and the child will likely have to file their own tax return (with their parents’ help of course).
For many parents, the primary drawback of UTMA accounts is that their children assume full authority over the accounts at age 18 or 21. Turning over a large sum of money to a young adult can be a daunting thought for a parent. Therefore, it’s important to have conversations with the child regarding financial responsibility. Unfortunately, if your child is immature/irresponsible, suffers from addiction, or has any other impediment that would prevent them from handling the money responsibly, there is very little recourse available to prevent them from assuming control of the assets. In practically all instances, the child will get the assets no matter their level of financial maturity. There are some legal actions you can try to pursue but they are time/money intensive and certainly not a sure bet to work.
3. Trusts and Family Limited Partnerships
There are a variety of trust types; each with various nuances and ideal use cases. I’m not going to dive into every type of trust, how they work, and what they are used for in this article. What I do want to emphasize is that trusts provide extensive customization in regard to transferring assets to beneficiaries. Unlike an UTMA account where the child has unimpeded free reign use the assets as they please upon attaining the age of majority, trusts allow the grantor to impose more stringent stipulations. One common methodology is to stagger the distributions at various age milestones. For example, the beneficiary might receive 1/3 of the assets at age 25, another 1/3 at age 35, and the remainder at age 45. This allows the child to receive a nice sum as a young adult (hopefully to be spent wisely), while delaying the remainder of the payouts until later in life (when, presumably, they are more mature and less likely to squander the assets). Alternatively, you can set very specific stipulations on how the trust distributions may be spent. For example, you could create a stipulation that prior to age 40 the child can only access the trust assets to buy a primary home, pay off student debt, pay for their wedding, start a business, etc. You can even make distributions contingent on the beneficiary meeting certain life milestones/criteria such as graduating college, having a job, making a certain amount of income, passing drug tests, and more. Basically, you can use a wide array of distribution stipulations to incentivize responsible behavior.
Many types of trusts have the same creditor protection that UTMA accounts have. What’s the catch then? Why open an UTMA account when trusts can provide the same creditor protection and provide more control over how and when the assets can be used by the child? The primary reason is because trusts are expensive. Creating a trust comes with hefty attorney fees and potentially complex tax and transactional logistics. While trusts are a great option for those who can afford them, many young couples that want to start saving for their children might not yet have the disposable income to spend on complex estate planning and choose to open an UTMA instead.
Family Limited Partnerships are another type of complex estate planning tool. Once again, I don’t intend to explain the ins and outs of how they work and when they make sense to implement. However, at a surface level, they allow business owning families to transfer a portion of their business interest and other assets to their heirs during life. Generation 1, who started the business(es), are the general partners of the FLP. They make all business decisions and control all the assets owned by the FLP. Gen 1 can choose to gift shares of interest in the FLP to younger generations, who become limited partners in the FLP. The younger generations often don’t have any say in the business operations of the FLP, but they may be entitled to income earned by the FLP’s assets and will ultimately benefit from any market value appreciation of their limited partnership interest.
Tax Considerations And Limits On Lifetime Wealth Transfer
Surprise surprise, we can’t talk about something finance-related without talking about taxes. There are various tax implications to consider when planning for transferring wealth in life or at death. There are limitations on how much someone can transfer to another individual without triggering taxes. All the lifetime gifting mechanisms highlighted earlier in this article are subject to these tax considerations, so let’s dive in.
As of 2025, the annual gift tax exclusion is $19,000. This means that any individual can give another individual up to $19,000 per year without either party having to pay tax on the gift or file a gift tax return. This exclusion is per person, per recipient, per year. Therefore, an individual with three children could give each child up to $19,000, for a total of $57,000, every year without any tax consequence.
Additionally, a married couple is not viewed as one entity, but as two individuals. For example, a married couple with three children could gift each child up to $38,000 per year without any tax consequence ($19,000 from each parent). Keep in mind that these annual tax-free gift limits do not apply to charitable giving; an individual can give as much as they want to charity without any tax impact.
What if you want to give more than the annual exclusion amount? If you decide to give a recipient more than $19,000, you will have to file a gift tax return that reports how much you gave beyond the annual exclusion amount. This excess gift amount will then eat into what is known as your ‘lifetime gift and estate exemption’. This exemption sets the upper limit on the amount of wealth an individual can transfer during life and/or at death, free of estate and gift tax. As of 2025, the lifetime gift and estate exemption is $13.99 million per individual (the limit is doubled for married couples). For example, let’s say a parent transfers $150,000 to their child to help with a down payment on a home. This gift is $131,000 over the annual gift exclusion ($150k - $19k). The parent would need to file a gift tax return to report the $131,000 excess gift. This parent’s remaining lifetime gift and estate exemption would then be reduced to $13.86 million ($13.99M - $131k).
If an individual depletes their entire lifetime gifting exemption, any additional lifetime wealth transfers would be subject to gift tax rates and any assets transferred to heirs at death would be subject to estate tax rates, both of which can be as high as 40%. Alternatively, let’s say someone utilized $7M of their $13.99M gift exemption via gifts to children during life. This would leave the person with $6.99M of unused tax exemption that could be applied against the value of their estate at death. If their estate was valued at $5M, the estate would not owe estate tax since $5M is less than the remaining exemption amount of $6.99M. However, if their estate was valued at $8M, the estate would have to pay estate tax on the $1.01M that exceeds their remaining exemption amount ($8M - $6.99M).
Derek Jones, CFA, CAIA, CRPSTM
Financial Advisor
Sources
¹The Charles Schwab Corporation (2024). Generational Wealth Divide: Younger High Net Worth Americans May Reshape How Wealth Is Transferred to Future Generations According to New Schwab Survey. https://pressroom.aboutschwab.com/press-releases/press-release/2024/Generational-Wealth- Divide-Younger-High-Net-Worth-Americans-May-Reshape-How-Wealth-Is-Transferred-to-Future-Generations-According-to-New-Schwab-Survey/default.aspx
²United States Department of Housing and Urban Development (2024). US Housing Market Data. https://www.huduser.gov/portal/ushmc/hd_home_prices.html
³Washington Examiner (2024). Median U.S. Home Price Expected To Hit $410,700 in 2025. https://www.washingtonexaminer.com/news/3271887/median-u-s-home-price-expected-to-hit-410700-in- 2025/
⁴National Association of Realtors (2019). Throwback Thursday: First-Time Homebuyers Then and Now. https://www.nar.realtor/blogs/economists-outlook/throwback-thursday-first-time-homebuyers-then-and- now
⁵National Association of Realtors (2024). Highlights From the Profile of Home Buyers and Sellers. https://www.nar.realtor/research-and-statistics/research-reports/highlights-from-the-profile-of-home- buyers-and-sellers
⁶Education Data Initiative (2024). Average Cost of College by Year. https://educationdata.org/average- cost-of-college-by-year
⁷Social Finance, Inc. (2025). What Is the Average Cost of College Tuition in 2024? https://www.sofi.com/learn/content/average-cost-of-college-tuition/
⁸United States Census Bureau (1971). Income in 1970 of Families and Persons in the United States. https://www.census.gov/library/publications/1971/demo/p60-80.html#:~:text=The%20median%20money%20income%20of,the%201969%20median%20of%20%249%2C430.
⁹Federal Reserve Bank of St. Louis “FRED” (2025). Median Household Income in the United States. https://fred.stlouisfed.org/series/MEHOINUSA646N
