Nearly two-thirds of U.S. households are now involved in intergenerational wealth transfers, with an increase in both wealthy and poor households.
This is according to a report by The Wealth Transfer: Business-building Strategies as More Families Engage With Inheritances and Trusts, Hearts & Wallets.
Of the 129.4 million total U.S. households, the survey found that 79 million (61%) received, plan to receive or leave an estate, compared with 58 million in 2015 (46 million). %). It will increase from 34.4 million in 2015 to 49.4 million in 2022. Bequests over the next 20 years are estimated at $17.5 trillion.
Why is inheritance increasing?
Laura Varas, CEO and founder of Hearts & Wallets, explains that the shift from defined benefit to defined contribution plans is partly responsible for the increase in household numbers, especially those with lower wealth. increase.
Under a defined benefit, she said, households receive a stream of income, usually passed on to the surviving spouse, but not to the next generation or to charities. can accumulate assets in your name that you can put towards your retirement expenses.
Since the “plan end” date (that is, life expectancy) is uncertain, it is wise to plan with some equity left over. “That’s where his financial advisor comes in,” he notes Varas. “They help households understand how to use up assets later in life to meet income needs and legacy desires.”
Wealth transfer is happening in the elderly
Research shows that wealth transfers are occurring at older ages than ever before. Nearly half (52%) of inheritances can be received at age 55 or older, up from 41% in 2015. Most of the inheritance he received is less than $500,000, but 13% is more than her $500,000 and 1 in 20 is more than her $1 million.
One reason wealth transfer has lagged is that Americans are generally living longer than they did 20 to 30 years ago. As a result, the transfer of wealth between generations often happens when children get older, Barras said.
Role of Advisors in Past Discussions
Most households want to talk to their heirs about their inheritance. Financial Her advisors can be important neutral facilitators to help the bereaved family talk, Varas said. “Our qualitative research tells us that investors wanting to leave an estate want the location of important documents and financial documents and how much money they have to include in family discussions,” she said. Told.
Financial advisors should ask about estate and inheritance expectations in conversations with clients and ensure that their customer relationship management (CRM) systems have the right fields for asset transfers, Varas said. . Research shows that men are more likely than women to want to talk to their heirs about a planned inheritance, she added.
Work with recipients of greater inheritance
According to Varas, those who receive an inheritance of $500,000 or more are more likely to be found in the four regions than in the rest of the country.
- • New York Metro
- Los Angeles metro
- chicago metro
- boston subway
There are common characteristics — demographics, attitudes, and behaviors — shared by larger estate recipients, Varas added. and has more real estate net worth than the national average. “Plus,” Varas says, “they are twice as likely to ‘demand my time,’ which leads them to delegate and evaluate different investment products.”
But they have a harder time deciding on strategies for extracting income, Varas noted. “By using profiling, such as targeting households that received more inheritance, advisors can better understand the households receiving the inheritance,” she said.
Use of asset transfer trust
Additionally, the survey revealed that only 1 in 4 households fund an account registered with the trust. “I was surprised by the low penetration of households over the age of 55,” he says Varas. “Many of these older households have significant assets in taxable accounts, and trust protection would greatly benefit as the owner ages.”
For example, nearly half of households over the age of 55 with assets of $500,000 or more and no trusts have more than 40% of their wealth in taxable accounts, she said. “These two facts show that supporting trust is far more important than many consumers and people in the industry realize.
Most households with funded trusts do not receive an inheritance, she adds, suggesting that trusts are something that can be revoked for one’s own benefit. suggests that they are inherited IRAs (which cannot be put into trust).
This report draws on the Hearts & Wallets Investor Quantitative™ Database (IQ database). The latest survey was conducted from August 15th to September 15th, 2022, with 5,993 participants.
Ayo Mseka has over 30 years of reporting experience in the financial services industry. She was previously Editor-in-Chief of her Advisor Today magazine for NAIFA.contact her [email protected].
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