Gen X-ers and millennials are poised to inherit trillions in the coming years

By Jessica Hall

The phenomenon known as the great wealth transfer could shift $72.6 trillion directly to these heirs over the next two decades

Generation X members and millennials stand to inherit trillions of dollars in assets from their baby boomer parents, meaning generations that have struggled under debt and high housing costs may see wealth for the first time.

The phenomenon known as the great wealth transfer could shift $72.6 trillion directly to these heirs, along with $11.9 trillion earmarked for charities, over the next 20 years, according to estimates by consulting firm Cerulli Associates. This massive financial exchange comes alongside another demographic phenomenon, "Peak 65," that will see more Americans reach that age than ever before.

Read: Home prices, auto loans and Social Security: More than 4 million people are turning 65 this year, and it will affect you

Even with longer lifespans and rising healthcare costs absorbing some of those funds, a lot of money will change hands.

Healthcare expenses for retired people are high and are projected to grow. According to Fidelity Investments, a 65-year-old retiring in 2023 could spend an average of $157,500 on health and medical expenses throughout their retirement. That total assumes the retiree has Medicare Parts A, B and D, but it does not include long-term care costs, which would escalate those expenses.

That is a lot of money, but the amount of wealth being transferred is much greater.

"Baby boomers saw surging values in home prices and stocks. There's a tremendous increase in wealth among U.S. families," said Caitlin Dimillo, principal and senior vice president and client adviser with Spinnaker Trust in Portland, Maine. "The effects of the wealth transfer will play out differently among different households."

But this influx of wealth will not benefit everyone. In fact, the transfer of wealth could exacerbate income inequality as those with means pass along their assets to their kids, helping widen the divide between the haves and have-nots.

"Society as a whole may see the transfer of wealth, but it's not happening at every generation at every household. Not everyone will benefit," said Rob Williams, managing director of financial planning at Charles Schwab.

A profound effect on younger generations

Overall, for millennials and Gen X-ers who have been unable to reach financial milestones, the great wealth transfer will have a profound effect.

"Many of them will be able to set aside money for retirement for the first time, because they hadn't been able to make retirement a priority because of student debt," Dimillo said.

"We all feel how life is more expensive now. This great generational wealth transfer - it's going to be a breath of fresh air for a lot of people," said Justin Stivers, financial adviser and founding attorney at Stivers Law in Coral Gables, Fla. "People will say, 'I can pay off my student loans, I can finally buy a house, I can take a vacation without putting it on a credit card.'. It's not so life-changing that [people] will never have to work again. It just puts people on better footing."

The oldest millennials and members of Generation X have lived through three recessions - the recession that followed 9/11, the 2007-09 recession and the COVID-related financial crisis - so they may already be more disciplined about money, experts said.

"It's not such a windfall that younger generations shouldn't be saving. You still have to be disciplined in your own financial life," Williams said.

Some of the wealth transfer has already begun, experts said, with families taking advantage of the lifetime tax-free gift allowance of $13.61 million. Others are doling out money in smaller amounts by using the annual gift allowance, which was $18,000 per individual in 2024.

Awkward conversations

Passing along wealth can be risky, however, if the recipients don't have a solid financial education.

"People are worried that kids who aren't currently wealthy will have a large amount dumped on them. This requires conversations and meetings with the parents and kids. The lack of financial literacy in this country is astounding. A lot of it is trial by fire," said Douglas Stokes, managing partner of the Stokes Family Office in New Orleans.

As a result, older generations are calling in advisers to be part of family meetings on wealth. That means lots of awkward but crucial family conversations, advisers said.

"The most successful wealth transfers among clients have been when beneficiaries are aware of what's coming and the parents are open about it. The parents get to control the narrative and there are no surprises," Stokes said.

While some parents may be hesitant to outline exact dollar amounts that may be passed down, even general conversations can help their children plan and learn ways to diversify, invest and plan for taxes.

Some families are even crafting family values statements or plans for how the money should be used. Williams said. "We're seeing that more and more. People want to leave a legacy, but with guidance - even if it's just having a conversation about goals," he said. "Older generations want some say in their legacy."

Dimillo agreed.

"It's certainly not uncommon for families to want to pass along values and ideas and good stewardship of money. Parents want to promote the concept that kids should not be unproductive members of society. Use the money to supplement income, not [to] live off of it exclusively," she said.

And everyone should have a plan in place for the transfer of assets when they die, Dimillo said. That includes having estate plans, such as a will or revocable trust, as well as setting up financial and healthcare powers of attorney. People with more wealth may have more complicated estate plans, but everyone should have some kind of plan.

"Parents, of course, don't want their kids rooting for them to die," Stokes said. "But it's still better to talk things through than not to talk."

-Jessica Hall

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01-24-24 1157ET

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