The Great Wealth Transfer: Cementing Your Legacy While Keeping Your Shirtsleeves

Introduction

We’re in the thick of “The Great Wealth Transfer,” the transfer of wealth from older generations to younger ones. Cerulli Associates projects that $84.4 trillion will be transferred through 2045, with roughly 86% being asset transfers and 14% charitable donations.^[1]

Greater than $53 trillion of “The Great Wealth Transfer” will come from the Baby Boomer Generation (1946-1964), with Silent Generation (1928-1945) households adding $15.8 trillion. Roughly 42% ($35.8 trillion) of the total volume of transfers is anticipated to come from high-net-worth (HNW) and ultra-high-net-worth (UHNW) households, a staggering number, as high-net-worth and ultra-high-net-worth households only account for 1.5% of all households.

What’s at Stake?

Particularly if you’re an HNW or UHNW family participating in The Great Wealth Transfer, providing for your family and preserving your legacy is at the forefront of your mind. But, as the adage “shirtsleeves to shirtsleeves in three generations” reminds us, building and maintaining wealth across generations can be incredibly challenging.

In a one-of-a-kind study, The Williams Group followed the finances of more than 3,200 families over 20 years. The results were startling: seven in 10 families tend to lose their fortune by the second generation, while nine in 10 lose it by the third generation.^[3]

Accumulating wealth doesn’t happen overnight, nor does preserving it across generations. Wealth planning, family alignment, and family wealth education are among the most important aspects of preserving your legacy and setting your family up for success, generation after generation.

Wealth Planning

At its core, financial planning is about removing uncertainty around variables within your control and establishing a pathway to advance your family’s future, regardless of the variables outside your control. But, to do that effectively, you need to work with professionals who consider your entire financial picture and work to develop strategies that align with your goals and objectives.

Sequoia’s interactive planning approach includes comprehensive and modular solutions to meet your needs. These span all common planning subject areas, plus specialized experience in estate planning, closely-held entities, executive compensation, and special needs planning. We work with you to address your planning objectives related to financial independence, risk management/contingency, estate and wealth transfer, business succession, retirement income, and philanthropy.

Each custom-tailored plan is created by a team with the technical depth and experience to develop an actionable strategic plan. The analysis is progressive and structured to grow and adapt as your financial needs evolve.

Finding wealth planning professionals can be challenging, but having the right team is paramount for long-term financial success, especially when generational wealth is involved. Be sure to find trusted professionals you feel comfortable communicating with who understand you, your family, and your goals.

Alignment on Family Values and Mission

The Williams Group study reported that the top reasons wealth doesn’t typically last beyond three generations are trust and communications breakdown, failure to properly prepare heirs, no family mission, or other reasons like a global pandemic.

Identifying and aligning family values is one of the most critical aspects of wealth transfer. Without an agreed-upon perspective, discussions around money and its purpose can get contentious, and without a family mission, too often result in the “shirtsleeves to shirtsleeves in three generations” phenomenon.^[4]

It is key to align on values that represent your entire family, not just the matriarch and patriarch. Values serve as a “true north” and help ensure a family stays close-knit and functional and makes an enduring, meaningful impact with its wealth. When families work together toward common, mutually agreed-upon goals, they are more successful, and family decisions around wealth and the family’s future become easier.

For those families who don’t align around shared values, it comes down to this: when you stand for nothing, you fall for everything.

Family Wealth Education

Family Education refers to understanding and effectively using various financial skills, including personal financial management, budgeting, and investing.

Citizens Financial Group, Inc. surveyed 1,500 U.S. adults, including 500 U.S. small and mid-size business owners, and found that 72% of Americans don’t feel confident managing a financial windfall. Most people say they are unsure they can manage a large inheritance independently.^[5]

Life is full of uncertainty, and sometimes, unexpected things happen. A strong basis of financial education can help you navigate challenging situations, allow you to make informed decisions, and hopefully lead to less stress and a higher quality of life.

As younger generations stand to inherit wealth, the need for financial literacy grows exponentially. Without direction and education, they can’t make the most of their inheritance from The Great Wealth Transfer. They could be in severe financial straits due to poor decisions, overspending, and unsustainable debt burdens.

Fortunately, in a rapidly evolving digital world, more resources are available now than ever for anyone looking to learn about finance. One such resource is the U.S. government-sponsored Financial Literacy and Education Commission, which offers a range of free learning opportunities.^[6,7] Other resources include books, magazines, podcasts, financial firms’ educational curriculums, and programs offered at local libraries and civic centers.

Conclusion

The Great Wealth Transfer is happening, whether or not you and your family are prepared for it. Wealth planning, family alignment, and family education are vital to any family, particularly for those transferring wealth through 2045.

If you’re unsure how to handle your portion of The Great Wealth Transfer, please contact Sequoia Financial Group. We’re here to serve clients across the wealth continuum, enriching lives by helping individuals and families advance their chosen futures.

Sources:

1. https://www.cerulli.com/press-releases/cerulli-anticipates-84-trillion-in-wealth-transfers-through-2045
2. https://www.linkedin.com/pulse/understanding-hnw-family-dynamics-wealth-preservation-chinedu-yqm0f/
3. https://business.smu.edu.sg/master-wealth-management/lkcsb-community/how-beat-third-generation-curse
4. https://www.sequoia-financial.com/family-education-why-aligning-on-values-is-critical-to-sustaining-generational-wealth/
5. https://www.citizensbank.com/learning/great-wealth-transfer-survey.aspx
6. https://www.investopedia.com/terms/f/financial-literacy.asp
7. https://home.treasury.gov/policy-issues/consumer-policy/financial-literacy-and-education-commission