Generational Wealth Transfer: Estate Planning Trends Among Affluent Americans

Wealthy Baby Boomers are set to pass down 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
The largest portion of wealth (30%) will go to children, followed by spouse/partner (28%)
Millennials and Gen Xers are more likely to share wealth during their lifetime compared to Boomers
Proper estate planning, including correct titling of assets and regular beneficiary designation reviews, is crucial
Selecting the right executor and ensuring estate liquidity are key considerations in wealth transfer

The Great Wealth Transfer: Boomers’ Legacy

As Baby Boomers approach their twilight years, a monumental transfer of wealth is on the horizon. This generation, known for its economic influence, is preparing to pass down an average of $3.1 million per wealthy individual. The distribution of this wealth is set to reshape family finances and the broader economy for years to come.

The breakdown of this wealth transfer is significant. Boomers plan to distribute $1.6 million through investments, $750,000 in real estate, and $550,000 in cash. Additionally, $170,000 is expected to be passed on through death benefit proceeds. This diverse portfolio reflects the financial savvy of a generation that has accumulated substantial assets over their lifetime.

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

Generational Divide in Wealth Sharing

A notable trend emerging from this wealth transfer is the generational divide in attitudes towards sharing wealth. Unlike their predecessors, Millennials and Gen Xers are showing a greater inclination to share their wealth with descendants during their lifetime. This shift in perspective could have profound implications for how wealth is managed and distributed across generations.

“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.

In contrast, Baby Boomers generally focus on maximizing their own financial fulfillment, with only a minority inclined to share earlier. This difference in approach highlights the importance of tailored estate planning strategies that can accommodate varying generational priorities while ensuring effective wealth transfer.

Distribution of Wealth: Who Gets What?

The distribution of Boomer wealth is set to impact various beneficiaries. The largest portion, 30%, will go to children, ensuring a significant financial boost for the next generation. Spouses or partners are next in line, set to receive 28% of the wealth. Charities will benefit from 13% of the transferred wealth, reflecting the philanthropic inclinations of many Boomers. Grandchildren are also in the picture, with 10% of the wealth earmarked for them.

“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.

This distribution pattern underscores the need for comprehensive estate planning that goes beyond wills and trusts. It highlights the importance of considering family dynamics, personal values, and long-term financial goals when structuring wealth transfer plans.

Key Considerations for Effective Wealth Transfer

Ensuring a smooth and efficient wealth transfer requires attention to several crucial factors. One of the most critical aspects is the correct titling of investment accounts and real estate. This seemingly simple detail can have significant implications for how assets are transferred and taxed.

Regular review of beneficiary designations is another vital step. These designations often supersede will provisions, making them a powerful tool in directing asset distribution. Having a revocable trust and a pour-over will can provide additional flexibility and control over how assets are managed and distributed after death.

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

The selection of an executor or successor trustee with the right skills is crucial for ensuring that the estate is managed effectively. This individual should have the financial acumen and personal integrity to handle complex financial matters and potential family dynamics.

Lastly, ensuring estate liquidity to cover final costs and debts is essential. This foresight can prevent the forced sale of assets at inopportune times, preserving the overall value of the estate for beneficiaries.