Why the $124 trillion great wealth transfer may not reach most families
Before Brandi McWhorter’s father passed away from lung cancer last year, she worked with him to lay out the details of his estate, something she dreaded to discuss.
Her father had a few life insurance policies, a 401(k), savings accounts, his house and vehicle to be finalized. Overall, McWhorter, who is 39, inherited roughly $150,000.
“He worked so hard for that money,” McWhorter told Straight Arrow News. “It breaks my heart he didn’t get to live long enough to enjoy it.”
To many Americans, $150,000 might sound like life-changing money. But McWhorter, a former accountant from St. Louis, who now runs a bed-and-breakfast and livestock ranch in Uruguay, didn’t feel that way.
Her experience reflects a growing conversation among economists and financial planners about “the Great Wealth Transfer,” a predicted wave of inheritances from older generations like Baby Boomers and Gen X to their younger heirs over the next two decades.
According to The Harris Poll, roughly $124 trillion in personal U.S. assets will transfer to younger generations over the next 25 years. Roughly 81% of Americans over the age of 55 plan to leave an inheritance to their children, according to the report.
But this wealth will not be transferred equally. The typical Baby Boomer household had a median net worth of about $432,000 in 2022, according to the Pew Research Center. That’s significantly higher than historical trends, when adjusted for inflation. But, Pew reported, the wealthiest 10% of Boomer households held 71% of the generation’s total wealth, estimated at $77 billion.
While the nation’s elders plan to leave inheritances, not everyone will be able to. A study by the Federal Reserve Bank of Boston found that only one in three white families and about one in 10 Black families receive any inheritance at all, and more than half of those inheritances amount to less than $50,000.
McWhorter received more than the average. But still, like 58% of younger Americans, she told SAN she believes it will be even harder for her generation to accumulate wealth than it was for her parents’ generation.
McWhorter told SAN she plans to save the money. But, she noted, $150,000 doesn’t go as far as it used to.
“When I was growing up, it seemed like everything was more attainable,” McWhorter said. “You could work a simple 9-to-5 job, buy a house, start a family, have a dog, go on vacation. Now I don’t know if that’s possible for most millennials.”
What would an expert say to do with an inheritance?
Russell James, a professor at Texas Tech University who specializes in financial planning and inheritance, believes that the realities of the Great Wealth Transfer are far more complex than five- and six-figure inheritances can seem.
“People who are richer live longer and those who have challenging health conditions have harder times keeping wealth,” James told SAN.
As a result of rising life expectancy and better quality health care, James and other experts say that most millennials and Gen Z Americans will likely see inheritance when they are in their 50s or 60s — well past the point these generations, however delayed, to buy homes or start families.
And, James said, merely having the wealth does not always result in holding onto it long-term. A study by the Investment Connection found that more than a third of trustees lose their wealth within the first two years, often leaving them in a worse financial situation than before.
It gets worse for families over generations; a 20-year research project on 3,200 families by the Williams Group found that 70% of wealthy families run out of money by the second generation, and 90% by the third.
James attributes the loss of family wealth to poor financial management and lifestyle creep from lavish spending in a short amount of time, as well as various debts, legal fees and taxes.
McWhorter said her dad’s biggest concern was ensuring his 15-year-old grandson, McWhorter’s nephew, was taken care of financially. To do this, the estate directed the house to McWhorter’s nephew, though he is a minor.
“I felt a trust was the most secure way to protect the house, ensure it was taken care of, taxes were paid, homeowner’s insurance maintained, and we included a clause that the house would be transferred to my nephew’s ownership at a certain age,” she said.
Sometimes skipping a generation makes sense: According to the Harris Poll, one in three members of the Millennial and Gen Z generations say they aren’t prepared to manage what they inherit.
Family dynamics affect inheritances, too
Los Angeles real estate agent Michael Millea told SAN that being unprepared can create tension and cost families financially if the estate goes into probate, the court-supervised legal process of validating a deceased person’s will.
“If a family has all their affairs in order, an estate could be handled within three to four months,” said Millea, who is also an attorney specializing in trust real estate dealings. “But I have had a client where it took him over 10 years to finalize his estate [during probate].”
Family dynamics can also complicate decisions, especially when multiple siblings inherit land or other items like art, jewelry or vehicles. Millea estimated that only about a quarter of his clients choose to keep inherited property, due to a lack of planning and conflict with other trustees on managing the estate.
“They all have different ideas and get pulled in different directions,” he said. “Eventually everyone just says ‘let’s just sell it.’”
In California — where the median home price is $900,000 — inheritance is often one of the only ways younger families can own a home. According to The Wall Street Journal, nearly one in five California home property transfers last year were the result of inheritance.
Despite the frequency of how often families sell their properties, Millea urges younger heirs to hold on to their properties for as long as they can, especially homes.
“See if there’s a good way to hang onto it. It’s hard to buy a home again [in California] once you sell it. These parents spent a long time generating these assets for the kids,” Millea said.
Ariana Burris, an Orange County-based lawyer who also focuses on trust and probate laws, told SAN she has seen more young beneficiaries inheriting property in recent years. Some of her clients get swamped in the financial reality of inheriting expensive homes, such as property taxes and maintenance costs.
“It is not just for the super rich or for the elderly. It is truly for everyday people,” Burris told SAN.
And, Burris and Millea said, there is an emotional toll to the inheritances as well.
“Early in my career, it was hard to take it all on. We try to operate with care, but we know we can’t be an extremely expensive therapist,” Burris told SAN. “When helping people going through grief, it can be tough, so we work with compassion and understanding. It can be overwhelming even when they know when it happens.”
For McWhorter, advanced planning went a long way. Though that, she said, came with its own emotional toll, given the social stigma of discussing someone’s death when they are alive.
“He had cared for me at the beginning of my life and I had the honor to care for him at the end of his,” she told SAN. “I wish more people knew what a tremendous gift this is, and that experience will be much more peaceful if things are planned in advance.”
Ella Rae Greene, Editor In Chief
