A massive wealth transfer is underway, with baby boomers set to pass on more than $68 trillion to their children. However, recent reports show a disconnect between how much millennials and Generation Z expect to receive in inheritances and how much their parents actually plan to leave them. While 68% of younger generations anticipate receiving an inheritance of nearly $320,000 on average, many baby boomers plan to leave less than $250,000 behind. Additionally, research has shown that a significant percentage of families, especially those of Black descent, do not receive any inheritance at all, or if they do, it is usually less than $50,000. This lack of communication between parents and children about financial topics, compounded by factors such as inflation and rising healthcare costs, may contribute to the discrepancy in expected inheritances.
Despite the potential for a large wealth transfer, fewer Americans are feeling financially secure, with just 14% considering themselves wealthy. However, over the next decade, the intergenerational transfer could make millennials the richest generation in history, according to the Wealth Report by Knight Frank. This transfer comes at a time when millennials and Generation Z are facing financial challenges their parents did not encounter at their age, including lower wages after adjusting for inflation and higher student loan balances. To better prepare for these financial changes, it is crucial for parents to have open and transparent conversations with their adult children about their inheritance plans and family values surrounding wealth building.
According to Elizabeth Koehler of BlackRock, parental views on inherited wealth are changing, with a focus on ensuring that the next generation shares similar values around financial responsibility and philanthropy. It is essential for firms and advisors to facilitate conversations that establish common family values and expectations regarding inheritances. The failure to create a specific plan for passing down wealth is a prevalent issue, as 90% of parents intend to leave an inheritance but nearly half do not have a detailed strategy in place. Mapping out how the money will be distributed, how much will be transferred, and discussing these plans as a family are crucial components of a comprehensive financial strategy.
Millennials and Generation Z may need to rely on inheritances as they face increasing financial pressures, including rising costs of living and high student loan debt. It is essential for older generations to communicate openly with their adult children about financial matters and ensure that they have a clear understanding of their inheritance plans. By having these important discussions and creating a detailed strategy for passing down wealth, families can better navigate the complexities of the upcoming intergenerational wealth transfer. Ultimately, having a clear plan in place can help ensure that the next generation is well-equipped to handle their financial future and continue the family legacy of wealth building and philanthropy.
