The Great Wealth Transfer

$68 trillion dollars, give or take a trillion or two. Over the next two decades. That is the amount that the Baby Boomer Generation (those born between 1946-64) will pass on to their Generation X children (born between 1965-1980) and Millennial Generation grandchildren (born between 1981-1996). The great wealth transfer has officially begun.

My recent article ‘Limited vs Limitless Generosity’ addressed the phenomenon of being overly-generous to your progeny to the potential detriment of both donor and recipient. In this article I want to look at it from the opposite perspective and explain in more detail why it may be beneficial to share some of your wealth during your lifetime. And why knowledge is possibly even more beneficial than wealth.

When to share your wealth

What is the optimum stage to begin wealth transfer? Obviously the answer will be dependent on the amount of assets that you have. Before you can work out the answer look at your updated net worth statement, financial budget and retirement plan, so that you can see exactly what might be available to distribute. If you have excess money available for distribution, when is the optimum time to start these distributions? As mentioned in my previous article, spoiling your children especially with true excess wealth, can create many problems. No-one wants to set their children up with the inability to find meaning in life, which often happens when things come too easily, as we see with the silver spoon syndrome.

But on the other hand, the goal line is not to leave this world with the biggest bank account. And working too hard to accumulate assets can lead to health issues, lack of time availability to use your wealth and thus long-term frustration. So how do you find the balance? This is where personality plays a huge role. The funds are yours to spend how you want. To those who want to be overly generous to their children and grandchildren, I refer you again to my article ‘Limited vs Limitless Generosity’. To those who do not want to share their wealth as they feel that their children and grandchildren will benefit from making their own way financially, I want to say the following.

Surveys show that the younger generations prefer earlier distributions, even if means they receive smaller amounts. These distributions will help your kids to get a head start and settle down financially sooner. Your gift will offer them a degree of stability, which might take them decades to reach if they don’t get assistance. A moderate distribution will allow them to enjoy financial resources at a time when they can utilize them to the maximum, in good health, instead of the stress many are faced with daily and the negative impact it can have in the long run. They can then use their income to build on and increase their financial stability.

Depending on your domicile your assets there may be subject to inheritance tax. If that is the case, there is a distinct benefit to giving a distribution ‘with a warm hand’, rather than a bequest after your passing. In Israel there is currently no estate tax, but the possibility gets raised from time to time in the Knesset. You will need to check the conditions in your specific domicile regarding inheritance tax to maximize the potential benefit of gifting during your lifetime.

Financial education – the ultimate gift

Currently millennials hold approximately 3% of the world’s entire wealth. In the next decade or two that figure will catapult to approximately 60%. Moving aside from the question of if and when and how much you want to give in your lifetime, the reality is that millennials will need to be financially aware to make educated decisions when responsible for such a large percentage of the world’s wealth.

I often mention the importance of having financial conversations with your children, because it is crucial to their long-term stability. Many parents are uncomfortable having these talks, maybe because they were brought up that discussing money was a taboo subject, maybe they don’t feel confident in their knowledge, or possibly they don’t want their children to be aware of mistakes they may have made.

However, the more frank you are in these conversations the bigger the gift you are giving the younger generation(s). Millennials are completely at home with online resources, so encourage them to read, learn about, and be involved with the different elements involved in financial planning. If they are less motivated, or there is friction within the family dynamics which means that conversations won’t work, consider consulting a financial professional or mediator.

Time well spent

As we go into the new year of 2023, if you haven’t already done so, make financial awareness and literacy your priority. I have been emphasizing how you should do this for your children and possibly grandchildren, but if you are not confident in your level of financial knowledge, it is never too late to learn. Educate yourself or consult a professional if necessary, and then share your knowledge and insights round the table with your family. Behatzlacha!