Managing Legacy Wealth Part 1 The Wealth Holders

This article is the first installment of a three-part series that revolves around the management of legacy wealth. Part one explores the defining characteristics of the generations involved in wealth transfer. Part two shifts the focus towards the recipients of this inheritance. Finally, part three provides valuable tools and best practices for effectively working with families.

We are currently witnessing one of the most significant transfers of wealth this country has ever experienced. According to Cerulli Associates, $84.4 trillion will transfer from the silent generation and baby boomers between now and 2045. Of that, $72.6 trillion will be transferred to heirs and $11.9 trillion will be donated to charities. While you may be hesitant to accept the idea that one’s generation influences our lives, decisions, and actions, it undeniably does. Understanding the characteristics of each generation works to your advantage when advising clients. How we were raised influences our beliefs, personalities and individual experiences, but our generation also plays a crucial role in shaping our worldview.

History has demonstrated that the financial services industry thrives during times when money is in motion. The transfer of wealth and the subsequent movement of money present both significant opportunities and risks for your business. In this environment, the winners will be the advisors who can showcase their knowledge and expertise in managing legacy wealth. The losers will be the advisors who fail to make a case for the value of advising the entire family.

The Wealth Holders
While it’s possible for any generation of a family to possess wealth, for the sake of simplicity, I’m assuming that the older generations will be transferring the wealth to the younger generations.                                                                                     

The Greatest Generation/The Silent Generation                               1901-1945
The living members of the greatest and silent generations were born between the years just before 1901 to 1946. Throughout their lifetime, they have experienced significant historical events such as the end of World War I, the Great Depression, the attack on Pearl Harbor, World War II, and the various economic booms and busts of 20^th century. The members of this generation are the parents of the post WWII population boom that we know as the baby boomers.

In terms of their financial behavior, this generation possesses distinct characteristics. First, the lasting impact of the Great Depression has instilled a strong inclination towards frugality in their spending habits. Second, many in this group benefit from a multitude of retirement income sources, including Social Security, pensions, company-paid health benefits for life, IRAs, and 401(k)s, surpassing any other generation in this regard.

The living members of these generations are now the elders of American families. According to the Federal Reserve, this generation holds assets of $18.6 trillion and liabilities of $810 billion. They value the service you provide and respect your expertise. Often, they see their financial advisor as a member of the family. When it comes to their legacy, members of these generations are more focused on passing on their values and life lessons than their assets. Due to concerns about how their heirs will handle the information, this group is often reluctant to reveal the precise monetary value of their bequests.

Working with The Silent Generation
To overcome this roadblock and increase transparency, these individuals might find the concept of creating an ethical will appealing. In an ethical will, the author shares their life story, values and beliefs with both current and future generations of their family. Sharing their life story, values, beliefs and wishes for the future helps the heirs gain a better understanding of the effort it took to create or grow the financial legacy they are passing on and increases the elder generation’s comfort in discussing the specifics of their financial legacy.

Baby Boomers                                                                                1946-1964
Before 1980, the baby boomer generation held the record for being the largest generation in history, reaching a peak of 78.8 members in 1999. The baby boomers were born and raised during the expansion that followed WWII. While the generation is too young to remember the second world war, they were old enough to have lived through many of significant events that shaped modern America. These include Kennedy’s assassination, the Civil Rights Era, the Vietnam War, Woodstock, Watergate, and many others. According to the Federal Reserve, baby boomers own half ($78.1 trillion) of the nation’s $156.0 trillion in assets even though they make up only 21% of the population. Among all generations the baby boomers have the highest amount, $19.0 trillion invested in equities and mutual funds, constituting a significant portion of their total assets.

The renowned American demographer Ken Dychtwald has been studying the generations for over 45 years. During this time, he has had a front row seat to witness the influence of baby boomers as they played a significant role in transforming many aspects of society, from how we eat to how we invest. As the baby boomers age, he expects this trend to continue. Given the age of this generation, it’s not surprising that their primary financial concerns revolve around retirement. Specifically, they are concerned about the cost of healthcare and the possibility of running out of money during their retirement years.

Working with Boomers
To help baby boomer clients become more comfortable with their financial situation, provide them with a comprehensive financial plan. This plan should clearly articulate their financial goals, their current assets, and identify the risks they face in achieving those goals. By having a well-defined plan in place, baby boomer clients will gain a better understanding of their financial situation and feel more confident about their future. Additionally, the financial plan can serve as a roadmap for making informed decisions and taking necessary steps to achieve their goals.

In part two, the focus will be on the two generations, namely Generation X and the millennials, who are poised to inherit the wealth.