Uncovering the Shrinking of the ‘Wealth Transfer’ from Boomers to their Heirs

As baby boomers rapidly approach retirement age, the wealth transfer from this generation to their heirs has been a topic of much discussion in the financial sector. Many experts had predicted that the windfall to their descendants would be substantial, but recent findings are now indicating that this is not the case. Recent research conducted by the National Bureau of Economic Research (NBER) has revealed that the extent of the wealth transfer from baby boomers to their heirs likely will not be as great as expected. According to the findings, only about one-third of assets held by baby boomers—which is estimated to be in excess of $18 trillion—is likely to transfer to the next generation. A few reasons are contributing to this shift in estimated wealth transfer. In a time when wealth has become more distributed, the percentage of those who are in the top income brackets is declining. This is due, in part, to a greater emphasis on job skills and educational attainment. As a result, there are more people with a lower net worth who are inheriting money than in previous generations. The study also highlighted the fact that baby boomers are using their assets to satisfy their own needs, such as living expenses or medical bills. This is resulting in a greater amount of wealth being consumed by baby boomers, as opposed to their heirs receiving it. One of the main motivations for passing down wealth to heirs is estate tax liability. However, recent changes to the estate tax limit have drastically reduced the incentive to do so. The 2018 Tax Cuts and Jobs Act increased the estate tax exemption amount to $11.2 million per individual. This means most households are no longer liable for estate taxes after passing this amount of wealth to their heirs. The findings of the NBER study signal an interesting shift in the way that wealth will be transferred from one generation to the next. It is clear that the wealth transfer from boomers to their heirs will not be nearly as large as was originally expected. As baby boomers continue to age, it is crucial that deference is given to their needs, both now and for the future. This requires thoughtful planning and consideration in order to ensure that their needs are met, while also preserving the wealth they have accumulated throughout their lives. As baby boomers rapidly approach retirement age, the wealth transfer from this generation to their heirs has been a topic of much discussion in the financial sector. Many experts had predicted that the windfall to their descendants would be substantial, but recent findings are now indicating that this is not the case. Recent research conducted by the National Bureau of Economic Research (NBER) has revealed that the extent of the wealth transfer from baby boomers to their heirs likely will not be as great as expected. According to the findings, only about one-third of assets held by baby boomers—which is estimated to be in excess of $18 trillion—is likely to transfer to the next generation. A few reasons are contributing to this shift in estimated wealth transfer. In a time when wealth has become more distributed, the percentage of those who are in the top income brackets is declining. This is due, in part, to a greater emphasis on job skills and educational attainment. As a result, there are more people with a lower net worth who are inheriting money than in previous generations. The study also highlighted the fact that baby boomers are using their assets to satisfy their own needs, such as living expenses or medical bills. This is resulting in a greater amount of wealth being consumed by baby boomers, as opposed to their heirs receiving it. One of the main motivations for passing down wealth to heirs is estate tax liability. However, recent changes to the estate tax limit have drastically reduced the incentive to do so. The 2018 Tax Cuts and Jobs Act increased the estate tax exemption amount to $11.2 million per individual. This means most households are no longer liable for estate taxes after passing this amount of wealth to their heirs. The findings of the NBER study signal an interesting shift in the way that wealth will be transferred from one generation to the next. It is clear that the wealth transfer from boomers to their heirs will not be nearly as large as was originally expected. As baby boomers continue to age, it is crucial that deference is given to their needs, both now and for the future. This requires thoughtful planning and consideration in order to ensure that their needs are met, while also preserving the wealth they have accumulated throughout their lives.