Wealthy Baby Boomers are set to pass on an average of $3.1 million each, but their approach to wealth transfer differs significantly from younger generations.
At a Glance
- Boomers plan to distribute $1.6 million via investments, $750,000 in real estate, and $550,000 in cash
- Millennials (53%) and Gen Xers (44%) are more likely to share wealth during their lifetime compared to Boomers
- The largest portion of wealth (30%) will go to children, followed by spouse/partner (28%) and charities (13%)
- Proper estate planning, including correct titling of assets and regular beneficiary reviews, is crucial for effective wealth transfer
Generational Divide in Wealth Distribution
A recent Schwab survey has unveiled a significant generational gap in attitudes toward wealth transfer among affluent Americans. While Baby Boomers are inclined to hold onto their wealth, prioritizing personal enjoyment, younger generations are showing a marked shift towards intergenerational sharing during their lifetime.
The survey reveals that wealthy Boomers are set to pass on an average of $3.1 million each. This substantial transfer will be distributed across various asset classes, with $1.6 million in investments, $750,000 in real estate, $550,000 in cash, and $170,000 in death benefit proceeds.
The Great Wealth Transfer, in which an estimated $84 trillion is expected to pass from Baby Boomers to Generation X and Millennials, isn’t just about financial planning — it also presents challenges dealing with the inevitable changes that come with aging and loss.
— Commerce Bank (@CommerceBank) November 13, 2024
Shifting Attitudes Across Generations
The survey highlights a stark contrast in wealth distribution philosophies between generations. Millennials and Gen Xers demonstrate a greater propensity for sharing wealth during their lifetime, with 53% and 44% respectively favoring this approach. This shift represents a significant departure from the more conservative stance of Baby Boomers.
“When thinking about transferring investments, the first step is to identify what type of account that the investments are held in — i.e., taxable or a retirement plan” said Susan Hirshman.
This generational divide in wealth transfer strategies underscores the evolving nature of financial planning and familial support. While Boomers prioritize maintaining their lifestyle and personal enjoyment of wealth, younger generations seem more inclined towards early wealth dispersion, potentially driven by a desire to support family members during their own lifetimes.
Distribution of Wealth
The survey provides insights into how Boomers plan to distribute their wealth. The largest portion, 30%, will go to children, followed closely by 28% to a spouse or partner. Charities are set to receive 13% of the wealth, while grandchildren will inherit 10%. This distribution pattern reflects a balance between family support and philanthropic intentions.
“If you plan on passing a personal residence and you have more than one heir, the key to a successful transfer is introspection” Hirshman said.
The substantial allocation to charities (13%) indicates a strong commitment to giving back to society among wealthy Boomers. This philanthropic trend could have significant implications for non-profit organizations and social causes in the coming years as the wealth transfer unfolds.
Key Considerations for Effective Wealth Transfer
Effective wealth transfer goes beyond simply drafting a will. The survey highlights several crucial considerations for those planning to pass on their wealth. Ensuring that investment accounts and real estate are correctly titled is paramount. Regular reviews of beneficiary designations are also essential to ensure they align with current wishes and circumstances.
Having a revocable trust and a pour-over will is recommended for comprehensive estate planning. The selection of an executor or successor trustee with the right skills is crucial for ensuring smooth wealth transfer. Additionally, when passing on real estate to multiple heirs, careful consideration of potential challenges is necessary. Finally, ensuring estate liquidity to cover final costs and debts is essential for a seamless transfer of wealth to the next generation.
As this significant wealth transfer unfolds, it will likely reshape the financial landscape for generations to come, influencing everything from personal finance to charitable giving and economic trends.
Sources:
- Wealthy Boomers Will Be Passing On an Average of $3.1M: Where That Money Will Be Going
- What will happen when the Baby Boomers retire and die and leave their wealth to the generations after them? – Quora
