Success During the “Great Wealth Transfer”
by A. Scott White, CFP®, ChFC, CLU
President, Scott White Advisors
Since 2019 we’ve been hearing about the Great Wealth Transfer – where Baby Boomers are expected to transfer $15-68 trillion in the next 20-30 years.
While we would all like to believe that a well-formed and up-to-date estate plan alone can ensure successful wealth transference from one generation to the next, research illustrates a very different outcome. According to studies cited in the book Preparing Heirs by Victor Preisser and Roy Williams, nearly 70% of family wealth transference and business succession plans fail. Couple this statistic with the fact that the largest intergenerational wealth transference is upon us, and we have a compelling and urgent challenge to address.1
Why do less than a third of wealthy families retain control of their assets in the wealth transference process? Although it may be surprising, even the most solid and well-crafted plans can fail, typically due to estate erosion caused by inadequate tax planning, liquidity issues forcing below-market sales, and lack of specificity leading to conflict among heirs. More striking, the heirs might lose control of their inheritance not from external sources, “…but rather in the values and practices of the heirs themselves.”1
So if you’re already spending time and money developing sophisticated plans to help protect your assets-such as a family business, real estate, and financial investments, as well as philanthropic foundations and trusts-what else can you do? Although it may sound simplistic, the answer is communication. Candid discussions about our own mortality are undoubtedly uncomfortable; however, postponing them may actually make situations worse. With trillions going directly from elder Baby Boomer parents to Gen X’ers and Millennials in the next two decades, there’s a great deal at stake..
A clearly developed plan, investment policy statement, and open communication greatly increase your odds of successful wealth transference. Ken Dychtwald’s “Age Wave” study revealed that less than one-third of Baby Boomers and their parents had held a comprehensive discussion on all aspects of legacy planning. Although personal discomfort with discussing death and inheritance is a major hindrance, another hindrance may simply be misinterpreting each other.
For example, Boomers feared upsetting their parents with such discussions, and vice versa. Almost 35% of the Boomers were more uncomfortable discussing their parents’ situation than the parents themselves (22%). And both groups thought the talk would cause conflict within the family (22% Boomers, 20% parents).2
The first step to solving this is to reframe the entire conversation. Rather than limit the topic to physical assets and possessions (the tangible inheritance), we encourage families to expand the topic to include intangibles such as positive memories and stories. Recalling family memories, stories and traditions illuminate a family’s ethics, morality, faith and even wishes for the future.
The revealed shared history facilitates intimacy and can even provide insight into how other issues might be addressed in the future.
Regardless of how uncomfortable it might be to discuss death and inheritance, postponing these discussions won’t make the discomfort go away. If anything, it increases the likelihood of more intense conflict at a later point. Consider it another aspect of the legacy one generation leaves the next – security in each other and their financial future.
1 Preparing Heirs: Five Steps to Successful Transition of Family Wealth and Values, Roy Williams and Victor Preisser, San Francisco: Robert D. Reed Publishers, 2003
2 “The Allianz American Legacies Study” by Dr. Ken Dychtwald of Age Wave, 2005