The greatest inter-generational wealth transfer is currently underway in most Western countries, including Australia, the United States and Canada. Right now, more than $12 trillion in financial and non-financial assets is in the process of being shifted from the Greatest Generation—those born in the 1920s and 1930s—to Baby Boomers born between 1946 and 1964. Over the next 30 to 40 years, an additional $30 trillion in financial and non-financial assets will pass from Boomers to their heirs in North America alone.
Canadians between 50 and 75 years old are set to inherit $750 billion over the next decade, the largest intergenerational wealth transfer in Canadian history.
Meanwhile in Australia, more than $400 billion of housing stock will change hands in Australia over the next 15 years as the parents of the baby boomers, and then the boomers themselves, shuffle off the mortal coil and leave their property to their children.
Inter-generational Wealth Transfer in North America
Over the next 30 to 40 years, $30 trillion in financial and non-financial assets is expected to pass from the Baby Boomers to their heirs in North America. At the peak, between 2031 and 2045, 10 percent of total wealth in the United States will be changing hands every five years.
In a report by a Canadian bank, research shows that even though elderly are living longer, “in absolute terms, more Canadians over the age of 75 will pass away in the coming decade,” leaving a “bequest boom” of assets to their heirs that could be worth up to $900 billion. Perhaps not surprisingly, most inheritances go to Canadians that are already in higher income brackets, with average inheritance for those who earn more than $100,000 almost three times higher than among lower income Canadians, the bank said.
However the inter-generational wealth transfer is likely to make the gap between rich and poor even more pronounced.
“The large proportion of the looming bequest boom that is expected to go to high-income Canadians suggests that income inequality will be further transformed into wealth inequality,” the bank said.
“Simply put, if wealth is not evenly spread across society, then inheritance will repeat the pattern and exacerbate inequality.”
The bank also noted that the bulk of inheritance money is likely to have an impact on the housing market, where those age 50 and above will be more likely to use their newfound gains to help the generation below them get into the housing market.
Inter-generational Wealth Transfer in Australia
Rising property prices, an ageing population and high home-ownership rates are expected to boost the pick-up in housing inheritance as a large number of “veterans” (people now aged 70 and above), followed by the boomers, succumb to old age and pass on a vast pool of property assets to their adult children.
The largest inter-generational wealth transfer in Australia’s history could create a new wave of prosperity but may do nothing to alleviate the supply-side bottlenecks plaguing the housing sector and driving up prices for home buyers.
Those in capital cities would realise the biggest gains from housing inheritance, with the largest projections for Sydney ($113bn), followed by Melbourne ($86bn), Brisbane ($33bn) and Perth ($33bn).
Real Estate Institute of Australia president David Airey said while the inter-generational wealth transfer was “significant” it would not help ease supply issues in the housing sector. “It will simply be making those people who inherit these assets very wealthy,” Mr Airey said.
“The Baby Boomers currently comprise 25% of the population yet they own 55% of the nation’s private wealth,” reports social researcher Mark McCrindle. “And in 2020, when the oldest Boomers hit t heir mid 70’s, we will witness the biggest inter-generational wealth transfer in history.” But it’s not just housing and other assets that will be transferred to the next generation.
“Succession planning is already a key issue - yet by 2020 40% of today’s managers in family and small business will have reached retirement age. We are headed towards the biggest leadership succession ever.”
The Rise in Inheritance Tension
Knowing that an inter-generational wealth transfer by way of inheritance is coming can lead to greater tension within families. Whether adult children want to receive their inheritance early or they don’t agree with the estate planning choices their parents are making, more cases are coming before the courts.
In any capital city in Australia, where real estate has increased in value astronomically over the last few decades, you have people who historically would have been of very modest means, who now have assets that are worth up to a million dollars just in their house alone. Meanwhile, their adult children are counting on an inheritance to help pay off debt and fund retirement.
The fact that the older generation is living longer is further complicating matters. Often living longer means higher medical expenses and the increased costs of care or a nursing home. For some, the thought that their inheritance is paying for this is galling.
The situation becomes even more fraught when concerns arise about the mental competence of an aging parent.
The onset of dementia can be a catalyst for all kinds of events within a family that precede the death of a parent, such as getting a parent to make new powers of attorney or moving assets around by setting up joint bank accounts or pressuring them to change their wills.
Some people take steps to secure a good financial position for themselves while their parents are still alive, even trying to have assets gifted or transferred to them so they no longer form part of the estate.
This is where elder financial abuse takes place, especially where the older person has diminishing mental capacity. A sign that this is happening is increasing social isolation, where the abuser (usually an adult son) will cut off mail and telephone calls, not allowing family to visit, and refusing to allow the parent to go to their usual social activities. This allows the abuser to influence the older person that nobody else cares about them.
Some adult children ask for an advance on their inheritance. This might be a significant loan to help buy a house or a request that the parent invest in a fledgling business that may later fail. However, these arrangements are often not documented properly. In some cases, other family members may not even be aware that such arrangements have been made. Or other family members will only realise that assets are missing when the older person eventually dies.
When it comes to inter-generational wealth transfer, we believe you need the assistance of trusted professionals. A specialist in wills and estates can help you with your estate planning and the most effective way to transfer your wealth to the next generation. Please contact us today – we offer a free, 10-minute phone consultation.