MW The Great Wealth Transfer is real - but the IRS or a nursing home might get your money first
By Kurt Supe
From Medicaid cuts to an IRA tax trap, here are the real threats to your family's inheritance and what to do about them
Money meant for heirs is increasingly falling into others' hands.
The largest wealth transfer in human history is moving through American families right now. The wealth itself is real, accumulated by the baby boomer generation through four decades of strong stock markets, real-estate appreciation and pension benefits.
The money exists. What's at stake is how much of it will actually reach the heirs it was meant for.
Three powerful forces are standing in the way - and all of them are getting stronger. But almost no estate plan has been updated to address any of them.
The first force is the most expensive and widespread: the cost of long-term care.
The 2025 CareScout Cost of Care Survey, the most recent edition of the long-running Genworth study, puts the national median price for a private nursing home room at $129,575 a year. A semi-private room runs $114,975. Nonmedical caregiver services at your own home average $80,080 a year at 44 hours per week. Costs in coastal U.S. markets and major cities run 30% to 50% more.
The numbers compound quickly against an estate. One spouse needing three years of skilled care leaves a family with $400,000 to $500,000 less. Two spouses, each needing four years of care, can spend $1.5 million before anyone has paid a single tax.
Longer lifespans compound the financial situation. According to the U.S. Department of Health and Human Services, about 70% of Americans will need some form of long-term care after turning 65, and 20% will need it for more than five years. In any two-spouse household, the odds that at least one partner will face significant care needs run materially higher than the odds for either spouse individually.
A Roosevelt Institute analysis released in April put the consequences in concrete numbers. Once they need long-term care, middle-class Americans see their wealth permanently slashed - leaving them with just 42% of what they started with. Meanwhile, the top quartile of earners eventually recovers roughly 94% of theirs. The money doesn't go to taxes. It goes to a facility, an aide or a hospital.
Tax jolt
This is just the largest of the three forces. The second comes from somewhere most families don't think to look: the U.S. tax code.
The Secure Act of 2019 eliminated the stretch IRA for most nonspouse beneficiaries. Children inheriting a traditional IRA must now empty the account within 10 years of the original owner's death. There's no required annual distribution and no cap on what they withdraw and when. There's just the 10-year deadline, with no extensions.
The math compresses fast. A $250,000 traditional IRA inherited by two adult children is liquidated at their marginal brackets across a decade. For example, a $3 million IRA inherited by the same two children produces a federal tax bill between $750,000 and $1.1 million, plus state taxes. Moreover, for larger inherited accounts and higher-earning beneficiaries, the 10-year compression can push an heir's marginal federal tax rate into the 32% to 37% range - exactly when their own income is already near the top of the rate scale.
One big, not-so-beautiful bill
The One Big Beautiful Bill Act contained two separate provisions affecting inheritance. One was widely covered. The other was barely mentioned .
The third force is the newest of the three, and most families haven't heard of it. The One Big Beautiful Bill Act, signed on July 4, 2025, contained two separate provisions affecting inheritance. One was widely covered. The other was barely mentioned.
The well-publicized provision raised the federal estate- and gift-tax exemption to $15 million per person and $30 million per married couple, beginning this year. Now, for just about every American family, the federal estate tax is no longer a meaningful planning concern. That part got the headlines.
The other provision did something different - it cut Medicaid funding by roughly $1 trillion over the next decade. Retroactive Medicaid coverage narrows, beginning in 2027. Home equity for Medicaid long-term care eligibility is capped at $1 million beginning in 2028, with no inflation adjustment and no state flexibility to bypass the restriction.
Medicaid pays for more than half of all long-term care delivered in the United States.
Medicaid pays for more than half of all long-term care delivered in the United States. The safety net that previously absorbed part of medical costs when a family couldn't afford them is fraying, and most families have noticed.
Three forces. Long-term care is draining the estate during the parents' lives. The 10-year rule is forcing inherited traditional retirement accounts to be emptied within a decade. The government's safety net is narrowing. Meanwhile, families are counting on financial plans that haven't been updated for today's tax issues.
Prepare for an unfamiliar future
For any family with retirement savings and an inheritance expectation, two questions matter most. First, how does the family fund long-term care without liquidating the retirement assets that are anchoring the financial plan? And how does the plan deliver what's left to the next generation in a form that doesn't surrender a meaningful share of its value to income tax?
The answers look different from the answers a decade ago. The foundation isn't a product. It's a year-by-year income plan that accounts for taxes and end-of-life medical expenses across the decades in which both will matter most.
A well-built plan does three things. It tests whether the current income strategy will support the family through retirement without exhausting assets prematurely. It models what's likely to remain for long-term care expenses at realistic cost levels over the next 20 to 30 years. And it projects what the actual inheritance is likely to be, measured against what the parents consider satisfactory.
When the results come back short on any of those measures, the plan shows what can be done about it: adjusting current spending, restructuring income sources, modifying withdrawal sequences or rebalancing where each year's income comes from. These adjustments work years in advance. They don't work after the care event has started.
The successful plan also reveals whether any insurance product is needed to fill a remaining gap. Some families find that a properly modeled income and asset base cover projected expenses. Others find a real gap that an insurance product can help close.
Read: The biggest risk to your retirement isn't a market crash - it's a crisis you probably haven't planned for
When such a product enters the conversation, the fine print matters. Traditional long-term-care insurance is the cautionary example most families have seen up close. Policies sold a decade or two ago have seen dramatic premium increases on coverage already in force, leaving longtime policyholders to choose between significantly higher annual costs or letting the policy lapse after years of paid premiums. Any product worth considering has to be evaluated against one test: whether the benefits it promises will remain affordable in the years they're actually needed.
The work on the inheritance side is different. Roth-conversion strategy has to be calibrated against the children's expected future tax brackets, not the parents' current ones, because the children are the ones who will ultimately empty the account. And estate documents drafted before 2026 generally need to be rewritten around the problem that's now arriving, rather than the problem the older documents were drafted to solve.
The $124 trillion projected to move across generations between now and 2048 is a real number. Of that figure, roughly $105 trillion is projected to pass directly to heirs, with the remainder going to charity.
What the projection doesn't capture is how much of the wealth meant for heirs gets diverted along the way. Some of it goes to a care facility. Some goes to the IRS. Some goes to a plan that was carefully constructed to defend against a different problem entirely.
Making sure an inheritance is actually inherited requires a plan built for today's threats. Most plans aren't. The inheritance-reducing forces aren't waiting for you to catch up.
Kurt Supe is a CPA and retirement planner with CFD Investments, Inc., a registered broker-dealer, and Creative Financial Designs, Inc., a registered investment adviser. For additional information and disclosures, visit www.creativefinancialgrp.com.
More: As baby boomers turn 80, caregiving is the unexpected job more Americans face
Also read: Social Security is facing a 22% cliff - 4 ways to build an income stream Washington can't touch
-Kurt Supe
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(END) Dow Jones Newswires
June 17, 2026 09:24 ET (13:24 GMT)
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