Cheat Sheet

The Great Wealth Transfer

5 Minute Read

Key Takeaways

 

  • An estimated 45 million U.S. households will transfer a whopping $68.4 trillion in wealth over the next 25 years to family members and nonprofit organizations.
  • Baby boomers will pass on 70% of the transfer but will still receive their own inheritances in the early years of the transfer.
  • Women and Generation X will reap the greatest benefits and transform their financial standing. Millennials will gradually increase their share of wealth ownership as their parents age.
  • Charitable organizations will directly receive 12% of the total transfer.

 

 

What is it?

The Great Wealth Transfer refers to the remarkable transfer of funds from older generations to beneficiaries (heirs or nonprofits) in the coming decades. The latest estimate predicts about $68 trillion will change hands from 2017 to 2041.

Baby boomers, the most affluent generation today, will pass on the lion’s share of the wealth: $48 trillion. Baby boomers hold 70% of U.S. disposable income today.

The two greatest beneficiaries of the transfer will be:

  • Generation X: This generation will receive 57% of transferred assets. They’ll receive $32 trillion from baby boomers alone. From transfers and other earnings, Gen Xers are set to double their share of household wealth by 2030.
  • Women: This group will gain significant wealth from spouses and older parents. Due to longer lifespans and older partners,1 one report estimates that female baby boomer spouses will receive up to $11 trillion in investable assets by 2030.

Estimated share of new wealth inherited, by generation

 

Why does it matter?

The wealth transfer has significant implications for philanthropy and fundraising strategy, most directly due to the estimated $8.2 trillion that will be transferred through planned giving and other gift types. Here are four other key trends for philanthropy professionals to understand:

  1. Many planned giving donors are writing their wills earlier. A recent donor survey found that the average age for writing a first will is 44 years old, and the average age at which donors make their first planned gift is 53 years old.
  2. Fundraisers can't expect the heirs of current donors to become their donors. Although family discussions of charitable giving increase the likelihood of children being charitable, few families actually talk to their kids about their giving. One survey found that 82% of financial advisors observe few of their clients involving children in charitable giving.
  3. Gen Xers have a greater appetite for health care philanthropy than baby boomers. Few hospital fundraisers prioritize Generation X today. However, Gen Xers give the most charitable dollars to health charities, while baby boomers give the most dollars to places of worship. Due to their age, Gen Xers are also more likely than baby boomers to be involved in the care decisions of loved ones. This is significant because family members of patients are more likely to want to donate than patients themselves.
  4. Women will become even more pivotal to philanthropy. Past research has found that a greater percentage of women give to charity than men across race and income. Women also dominate giving circles, such as leadership groups, and volunteer activities. One recent report found that women give two-thirds of total online gifts and a greater proportion of dollars than men.
 

A closer look

Tax policies and economic conditions will fluctuate over the next 25 years, making it difficult to predict with certainty how the wealth transfer will unfold. However, philanthropy professionals can prepare for the transfer by understanding certain realities about benefactors and beneficiaries.

Benefactors:

  • Begin giving wealth away during their lifetime. Most older adults say it's better to pass on at least part of their estate during their lifetime. Historical giving data also suggests more donors make legacy gifts while alive.
  • Leave planned gifts to charities they’ve established a long-term annual giving history with. Most legacy donors have given small-dollar donations in the past. One survey found that 50% of legacy donors were past donors with over 20 years of giving.

Beneficiaries:

  • Lack preparedness and clarity on inheritance. Most affluent heirs know the amount of their inheritance—but little else. One study found that only 37% of heirs discuss their inheritance with their benefactors before receiving it.
  • Look for a new financial advisor after receiving inheritance. Eighty percent of heirs choose a new advisor after inheriting their parent’s wealth—thus advisors struggle to keep past portfolios after a wealth transfer.
  • Prioritize financial needs first. Most adults save half their inheritance and put the rest toward strengthening their financial situation. Heirs first pay down debts, then invest in life-improvements such as education. After that, they make market investments. Giving to charity comes last.
 
Conversations you should be having
  1. Discuss the ways women approach philanthropy differently than men—based on your own donors as well as available literature. Assess the gender breakdown of your volunteers or giving circles. Think about ways to bring more women donors into leadership roles.

  2. Connect with financial advisors in your network to learn more about how they discuss estate plans and the role of charitable giving with their elder clients. Ask if they have current research on how wealth will likely transfer in your community and contribute to your prospect portfolio.

  3. Discuss with your team how to prioritize more long-term annual fund prospects for planned giving. Assess whether or not your planned giving strategies are biased toward major gift donors.

These conversations can help you identify the benefactors and beneficiaries of the Great Wealth Transfer. Curate an engagement strategy that is inclusive of their diverse needs.

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