Paul Revere is famous for riding at midnight yelling “the British are coming” to alert the people of Boston. His famous ride played a crucial role in winning the American revolution.  Today’s business leaders are doing a different kind of alerting, although just as important.  It’s the Great Wealth Transfer and it’s about to “pass trillions of dollars from founders to younger generations worldwide.” (Shan)

What is the Great Wealth Transfer and why is it important? It’s a historic intergenerational wealth transfer from the Baby Boomer and Silent Generation (those born between 1928 to 1964) of investors and older entrepreneurs to their children and grandchildren. Over the next two decades, the Great Wealth Transfer is estimated to range from $83 trillion to $124 trillion in money, property, and businesses from one generation to the next.  Yes, that’s trillions with a capital “T.” Cerulli Associates posits that the “Baby Boomer generation will move $39 trillion to their Gen X beneficiaries (those born between 1965 to 1980) , $46 trillion to the Millennial beneficiaries (those born between 1981 to 1996) and $15 trillion to their Gen Z or later beneficiaries (those born after 1997).” (Cerulli)   

 

Yes, the amount of wealth transfer will be staggering but there’s more.  The older generation that is transferring their wealth were builders—their purpose in accumulating wealth was to acquire money in concentrated areas such as family businesses, property, or local blue-chip shares.  This may be due to Baby Boomers coming of age and seeing both rising home prices and a long-running stock market. However, there is a significant difference in that second and third generations are more likely to be well-educated, mobile, and open to diversified ranging investments across asset classes and markets. “A Natixis Investment Managers survey found that Millennials are far more likely than older investors to see exposure to private assets. They are also more likely to discuss cryptocurrencies.” There’s also the risk factor, with the younger generations being more comfortable dealing with risk and wanting opportunities in foreign markets like the Asia-Pacific region.

Let’s not forget about non-profits. There is massive potential for non-profit organizations to receive charitable bequests between $12-18 trillion. Education, healthcare, community development, and social equity non-profit organizations are most likely to receive money in the Great Wealth Transfer.  Hospitals, health systems, and disease research organizations remain top recipients for major planned gifts and bequests.  Non-profits will need to adjust their strategy on how to talk to Millennials and Gen Z now and focus on multi-generational relationships and flexible giving to take advantage of the Great Wealth Transfer.  

Is there a downside? Sure, many first-generation wealth creators are reluctant to relinquish control which could result in a lack of transparency, communication, and potential family disputes. There’s also an inequality issue. Inequality remains as wealth is still concentrated with the top 2 – 7 percent of wealthy households   “The top 1% control 31% of wealth and the top 10% account for about 68%.” (Spitz)  Then there’s life expectancy. Spitz notes that the primary factor impacting the size and timing of the potential transfer is life expectancy. “The average 65-year-old can expect to live almost 20 years (more) today as compared to a little over fourteen in 1960. Baby Boomers can expect to live an additional eight to ten years.” (Spitz) Lastly, do we need to discuss taxes? Taxes can reduce the Great Wealth Transfer by about $8 trillion and large estates face a 40% federal tax rate on amounts above the threshold.  

The Great Wealth Transfer is coming! Time to make important decisions that will have an impact on your family, business, and non-profit organizations.