One of the biggest issues facing ultra-high and high net worth (HNW) individuals in the coming years is the multigenerational wealth transfer.
According to consultancy firm Cerulli Associates, its impact on the segment is set to increase “substantially” over the next few decades.
Cerulli forecasts wealth transfers in the US to total $84.4trn (£62trn, €74.4trn) through 2045 – with around $72.6trn in assets given to heirs, and $11.9trn donated to charities.
The majority of transfers (63%) will be passed on from baby boomers – usually defined as people born between 1946 and 1964.
Silent generation households – born between 1928 and 1945 – are set to pass on $15.8trn, which will primarily take place over the next decade.
Around 42% ($35.8trn) of the total volume of transfers is expected to come from ultra-high and high net worth individuals which, interestingly, make up just 1.5% of all households, Cerulli found.
Keep the entire family involved
The Boston-based consultancy firm also warned that advice and wealth firms will need to “remain on the cutting edge of complex planning and wealth structuring”, as taxation will become a more pressing worry for wealthy clients.
According to its research, grantor trusts are the most common way to mitigate tax among 77% of wealth managers in the US, followed by spousal lifetime access trusts (54%), and strategic gifting (46%).
Chayce Horton, analyst at Cerulli, said: “As taxes become an increasingly pressing regulatory issue among legislators, wealth managers will need to keep a pulse on the latest developments at the state and federal levels. Winners of walletshare will need to be prepared for changes to their business model and open to evolving with the needs of a younger demographic.”
Cerulli also found that the most effective way to plan wealth transfer strategies for HNW clients is via family meetings and regular communication (81%). Other ways include educational support (59%) and organised succession planning (31%).
Horton added: “Extending interfamily relationships to involve the entire range of stakeholders rather than just the current controllers of that wealth will create a greater sense of responsibility and inclusion among heirs that will help in the likely case that more complex discussions about management of the family’s wealth occur in the future.”
