The “Great Wealth Transfer” is stressing out Boomer benefactors.
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The Great Wealth Transfer is rankling millionaires, whose children have their own ideas about how to spend and give it away, according to new research from UBS.
Having money comes with hang-ups–and one that’s especially pressing these days seems to be figuring out what to do with your wealth before you die.
For many people, the answer is simple: Give the money to their children and grandchildren. But not everyone is too keen on that idea. Over two-thirds (70%) of high-net-worth investors are concerned about their heirs “using their inheritance wisely,” according to new research and a survey of 4,500 high-net-worth investors–individuals with more than $1 million in liquid assets–commissioned by global investment bank UBS.
About three-fourths (76%) of those surveyed identified the “smooth transfer of assets” as one of their key financial worries. Meanwhile, 70% said they are concerned about passing money to heirs in the most “tax-optimized way” possible.
A generational divide–including clashing opinions on how money should be used–is causing much of the headaches around wise spending. “Money means different things to different people in families,” says Michael Chudd, a Las Vegas-based wealth manager at UBS who works with some of the firm’s wealthiest clients. “So it’s really important to try to help the next generation understand what’s important about money to you, and make sure that your heirs are potentially aware of that–and then potentially, respecting those boundaries.”
The desire to influence posterity is nothing new. How these conversations play out, however, will dictate the flow of the greatest wealth transfer in human history, as nearly $73 trillion is expected to pass to younger generations in the U.S over the next 20 years, while another $11.9 trillion will be given to charities, according to estimates from the Cerulli Associates, a financial services research firm and consultancy. About 42% of that money will come from high-net-worth and ultra-high-net-worth households–which make up just 1.5% of all households–according to Cerulli.
On top of the difficult social and cultural gaps between generations, there’s the age-old roadblock of awkwardness–few people of any age want to talk about inheritance, which inevitably means talking about death. “It’s a depressing topic for everyone,” says Sarah Salomon, who leads the UBS Family Advisory and philanthropy services team.
All of that leads to the question: How can parents and their kids overcome these hurdles? One answer may be “family philanthropy,” a sort of gilded version of family therapy. Essentially, family philanthropy consists of children and parents deciding collectively on which organizations to bestow their money on. The practice is “a means to live and learn values within the family system” and a growing trend among wealth families, says Salomon.
In practice, family philanthropy often takes the form of kids deciding which causes and organizations will get their parents’ money. Take Rob and Karen Hale, the Massachusetts-based couple giving away $1 million a week to 52 grassroots charities this year. Their novel approach has coincided with greater involvement from their children. “We wanted this to be a family thing and get input from everybody,” says Karen Hale. “We’ve had a great time, taking causes that we believe in and that we want to help with, and then going out and finding the right organization to [give to].”
Their daughter Brett, a zoologist, has identified several organizations to give to this year, including a domestic abuse prevention and shelter, a Ukraine relief fund, an elephant preservation group, NARAL Pro-Choice America, Everytown for Gun Safety, and The Trevor Project, which works on suicide prevention for young LGBTQ people.
For philanthropic parents who are worried about their kids becoming stingy, it’s important to not just show, but show and tell. Talking to children about charity “has a greater impact on children’s giving than role-modeling alone” according to research done by the Women’s Philanthropy Institute at the Indiana University Lilly Family School of Philanthropy. (It also helps to have daughters, who are more likely to mimic their parents’ giving habits than sons, according to the study).
“Having the conversation and talking about giving is hugely important,” says Jacqueline Ackerman, Associate Director of the Women’s Philanthropy Institute. “Kids are not just often going to pick up what their parents are doing with their money. When parents talk about their giving, the kids are much more likely to be generous.”
To be sure, millionaires’ giving habits may seem like abstract concerns to folks with normal sized paychecks. But what millionaires’ kids decide to do with their inheritance will shape the future of nonprofits for years to come, particularly as growing inequality results in a diminishing pot of donors.
“Over two thirds of American households used to donate on a regular annual basis to charity, and now it’s more like 50%,” says Ackerman, citing another study from the Indiana University institute. “When you think of income equality, you don’t always think about philanthropy, but it’s the same story.”