Are affluent Americans prepared to pass on their wealth?

While nearly all affluent Americans expect to pass down wealth to heirs either during or after their lifetime, only 50% said they are very prepared to do so and have a written plan in place, according to a recent study by First Citizen Wealth.

The "Beyond Wealth" study also found that many affluent Americans are unsure of their retirement plans.

Most expect to retire in their 60s. Yet nearly 1 in 5 are unsure of when they will retire. The primary concern of affluent Americans preparing for retirement is maintaining their lifestyle (44%).

To retire comfortably, affluent Americans expect they will need $3 million, according to the study. To retire and be able to pass down wealth to heirs, they expect to need $5.5 million. Of those who would like to pass along their wealth, about 2 in 5 (44%) said they have thought about doing so but do not have a written plan in place. Additional gaps exist, with only two-thirds of affluent Americans indicating they have a will and even fewer having an estate plan (40).

"Our study finds that affluent Americans feel they are managing their money well but falling short in readiness to transfer that wealth to others, despite intending to do so," said Nerre Shuriah, First Citizens senior director of wealth planning. "Estate planning is best started well in advance of when it is needed. That's why it's crucial to work with financial professionals to clarify your estate goals and make plans to navigate a variety of retirement scenarios. Effectively planning wealth transfers and managing tax implications are important for successful outcomes when the time comes.”

Nine out of 10 affluent Americans credit financial advisors for growing their wealth; additional benefits of working with a financial advisor include reducing stress, saving time, and enhancing feelings of preparedness, according to the study.

The Silent Generation

At the same time wealth transfer planning is being cited as an issue of concern, the population is aging. U.S. household growth will be the fastest among households age 75-plus, according to Hearts & Wallets’ survey, Portrait™ of U.S. Household Wealth 2024: Sizing the Growth Prospects for Older Households and Categories of Advice. By 2033, 23 million households will be aged 75-plus, up from 15.8 million today and only 12.6 million in 2011. And by 2033, 12.8 million households will be over age 80, and 5.6 million will be over age 85. Overall, in 2033, 9% of households will be over age 80.

This aging U.S. population has implications for wealth transfer, the Hearts & Wallets study said. Over the next decade, the Silent Generation will decline by 7.4 million households, from 10.5 million to 3.1 million. Boomers will drop 7.4 million, with 33.6 million remaining. Most wealth transfer, at least over the next 10 years, will be from the Silent Generation to Gen Xers, rather than boomers to millennials. The Silent Generation, generally defined as people born from 1928 to 1945, is the demographic cohort that came after the Greatest Generation and preceded the baby boomers.

“The data show many households wish to discuss wealth transfer ahead of time to share important financial wishes and data that ease transitions,” Amber Katris, Hearts & Wallets subject matter expert, said. “Silents and Gen X will be the most immediate opportunity in wealth transfer. With responsibility for funding retirements thrust onto individuals, wealth transfer has become a mass market problem that will be a major force throughout our society.”

Talking about wealth transfer

As Katris pointed out, the survey shows that many households want to discuss wealth transfer ahead of time. So, what are some of the wealth-transfer issues that advisors should be focusing on when they meet with their clients, especially their affluent clients?

“The appetite to talk about wealth transfer is present across all asset ranges,” said Laura Varas, Hearts & Wallets’ CEO and founder. “Firms can develop approaches to help older people initiate the conversation with potential heirs. The desire is there, but it is sometimes difficult for family to talk about money.”

Younger heirs want to talk about it, too, and in general, they are more comfortable in talking about money, Varas added. Younger people, however, usually won’t start the inheritance conversation. This is a highly emotional topic for everyone, and they likely want to be respectful. That’s where a third party like a financial advisor can be helpful.

Trusts, of course, are important to discuss, Varas added, and firms should encourage older customers to set up trusts for themselves, especially for taxable assets. Accounts registered to trusts are becoming more common, up to at least 1 in 4 households. Incidence is consistent across investable asset ranges.

In addition, Varas said that firms should retain assets with programs for beneficiaries. “Engagement can begin while donors are still alive,” she said. “Beneficiaries, especially executors, may need more intensive support as the assets change hands, as well as advice that reflects their new reality. Support beneficiaries of inherited IRAs with advice on how to respond to recent tax law changes.”

The "Beyond Wealth" study surveyed affluent individuals across the United States with more than $500,000 in investable assets. The online survey was conducted among a sample of 1,000 Americans in April 2024 by Logica Research.

The Hearts & Wallets’ survey, Portrait™ of U.S. Household Wealth 2024: Sizing the Growth Prospects for Older Households and Categories of Advice, breaks down current U.S. households by age, wealth, generation and life stage with 5- and 10-year projections. The report synthesizes the latest data from Federal Reserve Financial Accounts of the United States (“Z.1”), U.S. Census Bureau population estimates, Survey of Consumer Finances (“SCF”) and the Hearts & Wallets Investor Quantitative™ (IQ) Database., The latest wave was fielded Sept. 11 – Oct. 6, 2023, with 5,846 U.S. households.

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