Generational Shifts in Wealth Transfer: Insights from a Schwab Survey on Affluent Americans

Hands holding stack of hundred-dollar bills with ribbon.

Wealthy boomers are set to pass on an average of $3.1 million each, but younger generations are changing the game of wealth transfer.

At a Glance

Wealthy boomers will pass on an average of $3.1 million each
Millennials and Gen Xers are more likely to share wealth during their lifetime compared to boomers
The largest portion of wealth (30%) will go to children
Boomers plan to distribute $1.6 million via investments, $750,000 in real estate, and $550,000 in cash
Ensuring correct titling of assets and reviewing beneficiary designations are crucial for effective wealth transfer

Generational Shift in Wealth Transfer

A recent Schwab survey has unveiled a significant shift in how affluent Americans approach wealth transfer across generations. The study highlights a clear generational divide in attitudes towards sharing wealth. Millennials and Gen Xers are showing a greater inclination to distribute their wealth during their lifetimes, with 53% and 44% respectively favoring this approach. In contrast, only 21% of baby boomers are considering early wealth dispersion, focusing more on their own financial satisfaction.

This shift in mindset reflects changing values and priorities across generations. While boomers tend to prioritize personal financial security, younger generations seem more open to sharing their wealth earlier, potentially to help family members or support causes they care about during their lifetime.

The generational wealth transfer is a significant shift as baby boomers pass down their wealth to millennials and Gen Z. 💸 This transition poses unique challenges.

Discover how firms can navigate these risks and retain clients amidst this major change: https://t.co/0RiaMsa34L

— Practifi (@Practifi) December 17, 2024

Boomer Wealth Distribution Plans

The survey reveals that wealthy boomers are planning to pass on a substantial amount of wealth, averaging $3.1 million per individual. This wealth is set to be distributed across various asset classes. The largest portion, $1.6 million, will be in the form of investments, followed by $750,000 in real estate and $550,000 in cash. Additionally, $170,000 is expected to be passed on through death benefit proceeds.

“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” – Susan Hirshman

This distribution strategy highlights the importance of diversified wealth planning and the need for careful consideration of tax implications when transferring different types of assets.

Who Will Inherit the Wealth?

The survey also sheds light on who stands to benefit from this massive wealth transfer. Children are set to receive the largest share, with 30% of the wealth earmarked for them. Spouses or partners are next in line, expected to receive 28%. Charities will benefit from 13% of the wealth, while grandchildren are set to receive 10%. This distribution pattern reflects the priorities of the boomer generation in terms of 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” – Susan Hirshman

This quote underscores the complexity of wealth transfer, especially when it comes to tangible assets like real estate. Careful planning and open communication with heirs are crucial to ensure a smooth transition and avoid potential conflicts.

The great wealth transfer stands to widen the inequality gap to a gulf, where a person’s success in this country is determined not by hard work or education, but by how rich their parents were. https://t.co/Ijx6dzvUrE pic.twitter.com/xBGhUTruj2

— Maclean’s Magazine (@macleans) September 13, 2024

Key Considerations for Effective Wealth Transfer

The survey highlights several crucial factors for ensuring effective wealth transfer. One of the most critical aspects is ensuring that investment accounts and real estate are titled correctly. This seemingly simple detail can have significant implications for how assets are transferred and taxed.

Regular review of beneficiary designations is another crucial step. Life changes such as marriages, divorces, births, or deaths can significantly impact who should be listed as beneficiaries on various accounts and policies. Having a revocable trust and a pour-over will is also recommended as part of a comprehensive estate plan. These tools provide flexibility and control over how assets are distributed.

Selecting an executor or successor trustee with the right skills is vital for ensuring that the estate is managed effectively. This person should be trustworthy, financially savvy, and capable of handling potentially complex financial and legal matters. Lastly, ensuring estate liquidity to cover final costs and debts is essential to prevent the forced sale of assets or other complications during the wealth transfer process.

As this significant wealth transfer unfolds, it’s clear that careful planning, open communication, and regular review of estate plans will be key to ensuring that the transfer aligns with the wishes of the wealth holders and benefits the intended recipients.