Thought Leadership

Great Wealth Transfer

Passing the Torch: Taking Generational Differences into Account When Planning a Family Wealth Transfer

Coined the “Great Wealth Transfer,” an estimated $84.4 trillion in family wealth will change hands by 2045.[i]  This unprecedented movement of assets across generations signifies more than just a transfer of wealth—it’s the passing on of hard-earned legacies. Yet, the unfortunate reality is that most of these legacies may not survive. Research by The Williams Group found that only one-third of families succeeded in retaining their wealth into the next generation[ii]

Fortunately, you can counter the odds with two powerful forces:  communication and education. But first, you must step outside your own viewpoint and understand the perspectives of your heirs, which can vary quite dramatically by generation. 

Understanding Generational Differences

Generational psychology can significantly affect how people deal with money, from Baby Boomers to Generation Z.  Here’s a quick overview of how each generation commonly perceives money and wealth. 

BABY BOOMERS (1946-1964)

This generation has accumulated substantial wealth over the past decades. Many successful Baby Boomers prioritize wealth preservation and tend to work with financial advisors to help ensure proper financial planning. One of their bad habits, however, is not communicating enough. Baby boomers have tended not to bring the whole family into the financial conversation, so their accrued financial wisdom may not pass to the next generation. 

GENERATION X (1965-1980)

Gen X is often termed the “sandwich generation” because many have responsibilities for both kids and aging parents. Consequently, whatever they may receive in an inheritance will likely be welcome. However, many in this generation may not have the financial skills to manage it properly. 

MILLENNIALS (1981-1996)

This generation may not have a balanced view on building and managing wealth since they have struggled with financial hurdles like student debt and the Great Recession from an early age. While an inheritance can help them significantly, most will be unprepared to manage large amounts. 

GENERATION Z (1997-2013)

Like the Millennials, Gen Z may feel anxious and unprepared to manage significant wealth, primarily since they’ve grown up witnessing periods of economic turmoil. While some of this generation is known to be surprisingly thrifty, they, like many Americans, lack financial literacy, which will be sorely needed. [iii]

The Need for Real Communication

The real problem occurs when these parties don’t communicate. Then, each generation is left to assume and is not likely prepared for what is coming. A recent study by Edward Jones found that almost half of those surveyed planned to leave an inheritance, but only 27% have actually started discussing it with their families. [iv]

So clearly, families need to start talking about this wealth transfer so heirs gain an understanding of what is required to manage wealth.

The Elephant in the Room

What can happen if you don’t discuss financial topics with your heirs? Unfortunately, social media is an ever-present source that will often fill the void. 

Recent research suggests that 79% of Millennials and Gen Z Americans have sought financial advice from social media. [v] While there are many good sources out there providing quality education, this is essentially the Wild West.  With no regulation, there are plenty of people with agendas pushing products or making questionable claims.   

One study by stock research platform WallStreetZen found that 63% of stock-related videos on TikTok were misleading. Over 22% implied that the named investment would provide specific returns, which, of course, can never be assured.  And 95% of the videos reviewed did not disclose investment risk. [vi]

Tips for Planning a Better Wealth Transfer

So now that you know what you are up against, what should you do to prepare?

  • First, if you haven’t already, get your estate planning in order.  Work with your financial planner to make your wealth transfer as tax-efficient as possible. 
  • Start talking with family about the topic. Involving family members in planning and decision-making helps them understand the family’s financial goals and values. It can also help educate them on the discipline needed to manage larger sums of money. 
  • Share stories about your financial journey and lessons learned to help heirs understand and avoid money mistakes. 
  • Determine the need for financial education and make a plan to provide it. 
  • Be sure to discuss the threats to wealth that exist and how time-tested safeguards like diversification and prudent spending can help preserve family assets. 
  • Familiarize family members with tax planning, asset protection and other critical topics.

Get the Help You Need to Do It Right

Don’t hesitate to enlist our help to get your entire family into the conversation.  We can also help you arrange educational courses to get family members up to speed. Having an objective third party involved can make the entire process smoother and more effective.

Whatever you do, start preparing now to ensure your legacy lasts.

[i] https://www.napa-net.org/news-info/daily-news/wealth-transfers-hit-84-trillion-through-2045

[ii] https://www.thewilliamsgroup.org/our-story/

[iii] https://www.refinery29.com/en-us/2020/10/10014753/thrifting-gen-z-thrift-shopping-trend

[iv] https://financialadvisoriq.com/c/4438814/577104/americans_discussing_wealth_transfer_plans_with_heirs_study

[v] https://www.forbes.com/advisor/investing/financial-advisor/adults-financial-advice-social-media/

[vi] https://www.fastcompany.com/91014525/gen-z-stock-financial-advice-tiktok-most-misleading

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