According to reporting by the Wall Street Journal, approximately $70 trillion in wealth will be transferred from baby boomers and older generations to their heirs by 2042. That’s a massive shift that may amount to the greatest wealth transfer in history.
But unlike in previous generations, this movement of assets may not be an entirely smooth one. For one thing, many baby boomers are uncertain that their heirs are capable of handling all that money, as some data suggests that millennials and Gen Zers are not as financially savvy as older generations. Yet, most baby boomers still intend to leave money to their heirs.
Here are some of the concerns that older generations have about the upcoming Great Wealth Transfer, along with some tips on how to handle a multi-generational inheritance plan.
Financial Literacy in Younger Generations
According to the 2021 TIAA Institute-GFLEC Personal Finance Index, Generation Z is the least financially educated, based on their knowledge of basic financial topics like earning, saving, investing, borrowing and understanding risk. They also have very different concepts about investing than their elder generations. For example, according to a study by Robinhood, 16% of Gen Zers said they hold stocks for one day or less on average, compared to less than 1% of millennials and Gen Xers. Similarly, while 60% of Gen X and one-third of millennials typically held stocks for longer than one year, as opposed to just 19% of Gen Zers.
Comfort Level Older Generations Have With Wealth Transfer
While each investor is entitled to trade stocks as they please, the short time frames that Gen Zers seem to prefer can make older generations uneasy. After all, it can be hard mentally for a benefactor to knowingly hand over a hard-earned nest egg to a generation that may trade it away.
According to data from a national survey conducted by professional services firm Progeny, about 25% of baby boomers don’t trust that the younger generation will use their inheritance wisely. The attitudes and priorities of the younger generations were the reason why 48% of boomers felt reluctant about transferring wealth, with the way they invest their money no doubt contributing to this reluctance.
Still, the majority of baby boomers still intend to make the wealth transfer. According to the Progeny study, approximately 60% of Boomers still said they intended to leave at least some money to the next generations of their family.
How Prepared Are Baby Boomers To Transfer Wealth?
Another reason why baby boomers may claim a reluctance to transfer wealth is that they haven’t prepared for it. Nearly one-third of Boomers in the Progeny survey indicated they were not confident about making plans for wealth transfer, with fewer than half noting they were confident.
Steps To Building an Inheritance Plan
One of the least popular topics for Americans to discuss is the family transfer of wealth. According to the Progeny study, most millennials and Gen Xers feel uncomfortable discussing wealth transfer with their parents, and 42% of boomers said they hadn’t yet had these types of conversations with their heirs. But not being prepared is a mistake.
As you can’t know for sure how long you will live, there’s no time like the present to begin the estate planning process. Failure to prepare for post-death wealth transfer could leave your heirs with a heap of problems, from higher-than-expected tax bills to specific heirs not receiving what you intended to leave them. Not discussing your plans with your heirs could also lead to confusion and hurt feelings over who receives what. Here are some of the most important steps you should consider.
Identify and Notify Your Beneficiaries
Choosing where your money will go is always the first step in the estate planning process. Notifying your beneficiaries will have them better prepared to deal with the inheritance they’re going to receive, preventing any surprises.
Draft Formal Estate Planning Documents
It’s one thing to know in your mind where you want your money to go after you die, but unless you create formal documents, your wishes are unlikely to be fulfilled in the manner you intend. Start with a will, and add additional documents that your financial advisor or estate planning professional recommends.
Plan To Avoid Estate Tax, if Applicable
The estate tax doesn’t affect many American estates, with less than 0.1% of estates paying any estate tax according to the Tax Policy Center. But if you fall into that elite category, it’s essential that you work with an estate planning attorney to preserve your estate as best you can.
Consider Health and Legal Directives
Important permissions to handle your health care decisions and legal matters in case you become incapacitated should also be included in your estate plan.
Organize Your Records
Although you may have your financial records organized in a manner that you understand, remember that your heirs won’t have your first-hand assistance with sorting everything out. Keep all of your financial documents organized in an easy-to-understand format, with written instructions where necessary.
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