The largest wealth transfer in history is looming before us. Are you ready?
By Jess Stonefield
Second acts aren’t just for people. The wealth you’ve earned thus far will eventually have a new life, too. And if you don’t plan properly, it might be a very short one.
As we build families and continue to age, the discussion of wills and estate plans becomes increasingly important. Our loved ones (and lawyers) want to make sure our assets and wealth go where we want them to when we pass away—that nothing ends up in probate—that our money and valuables are transferred seamlessly to the next generation.
The only problem: no one talks about what happens after.
Right now, we face the largest intergenerational wealth transfer in history. Accenture reports over the next 30-40 years, $30 trillion in assets will pass from Baby Boomers to their heirs in the United States alone. The issue: 70 percent of those intergenerational wealth transfers will fail by the time they reach the second generation. Even worse: by the time that wealth reaches the third generation, it will be worth just 12 percent of its original value. Nearly 90 percent of your hard-earned wealth lost. There must be a better way.
Ensuring a Successful Wealth Succession
A few years back—during the Great Recession—we needed to sell our condo in Long Beach, California. Unfortunately, it was classified as a “co-op,” which meant it was not eligible for a mortgage loan—i.e. we needed to find a cash buyer. Imagine our surprise when the buyer turned out to be a young college student who had just inherited a few hundred thousand dollars from her grandmother. Smart woman—savvy investor. Unfortunately, most people who inherit money aren’t like her.
Research shows that 7 in 10 people who suddenly inherit money will lose it all. In fact, one study found that one third of people who received an inheritance had negative savings within two years of the event. Why? In short: those inheriting the money are often ill-prepared to manage it. A sudden windfall is often a huge temptation to spend and splurge on things one can’t usually afford. Without proper planning, your inheritance could easily dissolve into a few fun purchases—a nice car, frivolous vacation, fancy jewelry—rather than providing your children, grandchildren, or even those in need with a solid financial future.
When it comes down to it, lost wealth = opportunity. Luckily, you can turn the tide of failed wealth transfer. The following are just a few ways:
- Discuss your wishes early on.
Don’t wait until end-of-life to discuss wealth and what it means to you with your children and grandchildren. Let them know why financial security matters, and how you wish for them to use your money when you pass away. Maybe you do want them to take a family vacation to create special memories. But maybe you also want them to finish college, set up a retirement account, or establish a foundation for a cause you love. They won’t know until you talk about it. So, invite them into the discussion, all the while communicating the responsibility that comes with wealth—not just the instant prosperity.
- Focus on family values—not just wealth.
Many kids and grandchildren discuss “how much they’ll get” when someone in their family makes their transition. Instead of talking to your kids about net worth, try talking to them about values from an early age. Forget your legacy—what is your family’s legacy? Do you want to instill the concept of giving to those in need? How about saving animals, or serving refugees? When children grow up living certain values, they are far more likely to live them when you’re gone.
- Put your money where your heart is.
After all, you earned it. If you want to donate a majority of your wealth to a local charity or launch a foundation instead of transferring it to your children, you’re allowed! If you want a minimum of 50 percent of your wealth to be put toward a retirement nest egg for your children, or invested to launch a long-term scholarship fund for those in need, say it! Stipulate that those funds must be used as intended so they do not go to waste. These are decisions you alone can make—and the more thoughtfully you consider them, the more successful your wealth succession will be.
No matter how much or how little you are leaving to your children, you must take proactive steps to keep that wealth safe. After all, money isn’t just for spending. It’s for building brighter futures, more secure retirements, and safe living conditions. It’s for making a difference in its encore act—and with your help, it can.
Jess Stonefield is a contributing writer on aging, mental health, and the greater longevity economy for publications such as Changing Aging, The Mighty, and Next Avenue. She is passionate about impact investing and the greater concept of “equitable equity” — spreading wealth to all levels of our society. She is a communications expert for Senior Living Fund.