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Giving it away: How to navigate the $30 trillion wealth transfer

The great wealth transfer
The great wealth transfer

As the baby boomer generation enters retirement, the greatest wealth transfer in history is getting under way, with some $30 trillion in assets set to be passed on to Gen X and millennial heirs.

How can — or should — boomer parents and grandparents pass on their money? CNBC Senior Personal Finance Correspondent Sharon Epperson turned to three financial advisors to gain some insight. 

Certified financial planner Peter Mallouk, president and CIO of Creative Planning, said the first step before gifting heirs is "to at least have gone through a short analysis to make sure that you have all the income you need for the rest of your life."

Then you can begin gifting $14,000 per recipient per year tax-free, with a lifetime gift exemption of $5.43 million. Figure out if you can truly afford to gift before starting to do so.

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Second, you want to make sure you're protecting your assets while you're still alive and able to do so.

That means having adequate insurance coverage, said Ivory Johnson, CFP and founder of Delancey Wealth Management.

"Once you've grown the assets, now you have to start to protect them," he said, advising aspiring benefactors to acquire sufficient disability, liability and long-term care coverage so everything is not lost in the event of misfortune.

Lastly, educate your heirs about finance. "You want to make sure they're responsible enough to spend the money, because otherwise … it's the exact same thing as having given away all the things you worked for" because you weren't insured, Johnson said.    

Weighing the pros and cons of portfolio diversification

Manisha Thakor, director of Wealth Strategies for Women at Buckingham and The BAM Alliance, said she recommends pairing an annual gift of $5,500 — invested in an individual retirement account — to adult children, paired with lessons on investing, asset allocation and how to conduct an annual financial checkup. 

"It's the gift that keeps on giving," she said. "Not only does it help pass wealth while you're still alive but it helps you avoid this issue of having everything you worked hard for blow up by giving kids too big of a lump sum at a point in time before they're educated and ready to really handle it responsibly."

Mallouk stressed that there are a lot of unknowns in wealth transfer, as well.

"No one really knows what they're going to spend in retirement," he said. "There's lots of rules of thumb, and you have to throw a lot of [them] out the window."

How much you can or want to bequeath will be affected by health-care expenses, vacation habits and the number of homes you own. If you do start to gift money to your heirs each year, "it's nice to let the kids know it's not a pattern," he said. 

"Don't count on it; don't budget on it," Mallouk advised benefactors to tell younger heirs. "We'll figure this out as we go."

— By Kenneth Kiesnoski, associate editor