A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up to receive future editions delivered directly to your inbox. More than $100 trillion in family wealth is expected to be passed down as part of the largest wealth transfer program in U.S. history, according to a new report. With personal wealth doubling over the past 12 years and more wealth concentrated at the top, especially among older baby boomers, the financial cascade is expected to accelerate in the coming years. According to a report by Cerulli Associates, $124 trillion is expected to be transferred to family members and charities by 2048. Of this amount, $18 trillion will go to charity and $106 trillion will go to families and heirs. Much of it will come from the wealthy: About $62 trillion will come from the richest 2 percent of Americans, or those with a net worth of more than $5 million. While the largest handovers are still a year or two away, an estimated $2.5 trillion is currently being passed down to the next generation and spouse each year, the report said. Annual windfalls will increase to $3 trillion per year by 2030, $4 trillion per year by 2036, and eventually more than $5 trillion per year. “This is already happening,” said Chayce Horton, senior analyst at Cerulli Wealth Management. As more women, Millennials and Gen Z are poised to join the ranks of the new rich, the face of wealth in America is set to undergo its most radical transformation in decades, with huge implications for wealth management, luxury goods, collecting and philanthropy. Women will gain more and more wealth in the coming years. Cerulli said $54 trillion would be transferred to spouses, the majority of whom are women. This “horizontal transfer,” in which a spouse inherits wealth first and then passes it on to younger generations, will be particularly prominent in the next decade. From a demographic perspective, Generation X will be the biggest beneficiaries over the next decade. Generation X is expected to inherit $14 trillion by 2034 and $39 trillion by 2048. In other words, of the $2.5 trillion that is passed down each year, about $1 trillion will go to Generation X. Millennials will take over the inheritance baton around 2038 and are expected to inherit $46 trillion over the next 25 years. Generation Z is next and is expected to deliver $15 trillion in the same time frame. Estimating inherited wealth, especially over decades, is both an art and a science. Current trends in asset values, bequests, charitable giving, and the longevity and spending rates of wealthy individuals may all vary. It remains to be seen whether the great wealth transfer will prove as lucrative for heirs (and the wealth planning industry) as advertised. So far, estimates and forecasts have only increased. Cerulli’s previous prediction for the Great Wealth Transfer in 2021 was that there would be a total of $84 trillion in wealth transfers within 25 years. The estimated increase of nearly 50% is driven by three powerful economic forces: inflation, soaring asset values and increasing wealth concentration. Cerulli’s estimates used the Federal Reserve’s Survey of Consumer Finances, the most comprehensive federal data on U.S. household finances and wealth. It then takes typical savings rates, retirement expenses, stock, bond and real estate forecasts and applies expectations for life expectancy, taxes, and donation and wealth transfer patterns to generate forecasts. Horton said the $84 trillion would be $100 trillion today, adjusted for inflation. Asset prices have also risen significantly since Cerulli’s last valuation, with stocks up 27% and property values rising 39%. Because assets in the United States are heavily concentrated at the top, most of the gains since the pandemic have gone to the wealthy. The share of wealth held by people worth $10 million or more jumped from 40% in 2020 to 44% in 2023, the report said. At the same time, the amount of wealth held by people aged 60 or older increased from 54% in 2020 to 2023. From 2020 to 2023, it will reach 61%. “High-net-worth households are more likely to be inherited by assets at the end of their lives,” Horton said. Although the great wealth transfer lasted for 25 years, it will bring structural changes to the wealth economy. In the short term, wealth management firms, family offices, trusts and estate attorneys, and other advisors to wealthy individuals will be laser-focused on planning and structuring the most efficient and effective way to pass down wealth. Educating the next generation is also crucial. “The first step is getting ready for existing customers,” Horton said. In the long term, the wealth management industry, luxury brands and not-for-profit organizations will need to adapt to a completely different customer base – from older male wealth creators to more women and next-generation customers. “The second step is to go beyond the core client and expand to spouses, significant others, children and business partners, building a consulting practice that can engage with these stakeholders on an ongoing basis,” Horton said. “And ultimately get them to become active clients. To adapt to the new client base, firms serving wealthy clients need to recruit more women and younger advisors to better reflect and connect with new clients, Horton said. “This reflects a consulting practice with clients,” Horton said.
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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up To receive future editions delivered directly to your inbox.
More than $100 trillion in family wealth is expected to be passed down as part of the largest wealth transfer program in U.S. history, according to a new report.
