Great Wealth Transfer: How Boomers Are Passing on Fortunes to Their Heirs

dusanpetkovic / Getty Images/iStockphoto
dusanpetkovic / Getty Images/iStockphoto

The baby boomers capitalized on an unprecedented 40-year rally in stock and housing prices. Now, those babies are bequeathing on an equally epic level.

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According to financial market intelligence firm Cerulli and Associates, boomers and the Silent Generation (preceding boomers) will pass down $84.4 trillion in assets through 2045, with $72.6 trillion going directly to heirs.

The Bank Administration Institute says it will “end up as the greatest transfer of wealth in history.” So, how, exactly, do tens of millions of people pass on tens of trillions of dollars? Let’s examine the situation.

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The Lower 98.5% Is Taking Up a Rich Tradition

Boomers are handing down the lion’s share of the wealth — $53 trillion or 63% of all transfers. The Silent Generation will hand down $15.8 trillion, mostly over the coming decade.

Ultra-high-net-worth households in the top 1.5% will account for 42% of the Great Wealth Transfer — about $35.8 trillion.

That last part shouldn’t be surprising. The rich have always passed estates down to their heirs, but over the last few years inheritance has gone mainstream.

The research and benchmarking firm Hearts & Wallets surveyed nearly 6,000 households and found that in 2022, 60% had received, planned to receive or planned to leave inheritances like property, investments and cash, including 54% of households with less than $100,000 in investable assets.

That’s a 14% increase from 2015, when just 46% reported the same.

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Trusts: Newbies Should Adopt the Playbook of the Gilded Class

The Hearts & Wallets study found that most of the sub-$100,000 households have no prior experience with inheritances. Before they make any mistakes they can’t undo, they’d be wise to follow the lead of those who have generations of wealth-preservation experience.

“Ultra-wealthy families nearly always utilize trusts to pass wealth,” said John M. Jennings, president and chief strategist of St. Louis Trust & Family Office, a $15 billion wealth management firm. “It’s exceedingly rare for assets to be left to heirs outright.”

Why Can’t I Just Leave My Assets to My Kids in a Will?

Outright distribution of inheritances can lead to strained relationships and money squandered to taxes and the courts.

“Real estate and securities can fluctuate in value wildly and it’s difficult to split those types of assets up amongst several beneficiaries without causing unintended personal relationship or tax consequences,” said DGVE Law founder Danielle G. Van Ess, an attorney with 22 years in private trusts and estates practice.

No matter what amount or kind of assets you’re handing down, trusts can make the transition go more smoothly and in accordance with your plans while keeping more of your money in the hands of your heirs.

“Real estate, cash, securities, life insurance policy proceeds, tangible personal property and almost all other types of assets can be distributed through trusts in a way that can better equalize the distributions and allocate the tax burdens — income, estate or capital gains taxes — of transferring wealth than would outright distribution to the same people,” said Van Ess. “Trusts can help preserve relationships, incentivize healthy behaviors and lifestyles, encourage good stewardship of inherited wealth and may also help shield beneficiaries from losing the inherited wealth through divorce, lawsuits, unsuccessful business ventures and the like.”

Some Seek an Extra Layer of Protection Overseas

The wealthiest families or those with particularly tricky situations take generational wealth preservation a step further.

“Simply creating a trust does not guarantee that a conflict will not arise,” said asset protection attorney Blake Harris, founding principle of Blake Harris Law. “For families who are the most serious about protecting their wealth, they are looking to create offshore asset protection trusts. These trusts are not subject to the jurisdiction of the U.S. court system.”

Harris said that in addition to streamlining the transition of assets after the trustor passes, offshore trusts — often registered in jurisdictions like Belize, the Cook Islands and St. Kitts and Nevis — provide protection from lawsuits during the trustor’s lifetime. And they offer the same versatility as domestic trusts.

“An offshore asset protection trust can own real estate, cash, cryptocurrency, and a variety of other assets,” said Harris.

Open Communication and Thorough Planning Are the Keys to Success

No matter what kind of wealth you’re transferring, and regardless of whether you’re using a trust or outright distribution, frank discussions with all interested parties are crucial, no matter how difficult those talks may be.

“Some families think they shouldn’t tell their kids they are planning on gifting them money and/or valuable assets,” said Travis Christiansen of Boyack Christiansen Legal Solutions, a published author with more than two decades of estate planning experience. “However, this isn’t the best policy. By talking about it before it happens, a child or other beneficiary can be prepared and make plans to keep as much as possible.”

Whatever you do, don’t leave your heirs to sort it out amongst themselves or in the courts.

“One of the worst things you can do is not write a will or plan for passing along your wealth because you think your children and beneficiaries will work it out themselves,” said Christiansen. “While this may be true, it can cost them more money and time and permanently damage relationships than if you wrote it all out in a will. If you’re not interested in passing your wealth to your family, you may want to consider giving it to a charity. This may upset your heirs, but you won’t be around to worry about that.”

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This article originally appeared on Great Wealth Transfer: How Boomers Are Passing on Fortunes to Their Heirs