The “great wealth transfer” is approaching, with projections calling for more than $84 trillion in assets to be transferred to heirs or donated to charities over the next few decades.
Advisors are currently talking with clients and their families about their goals as this transfer approaches, but there are key generational differences that will have a long-term impact on the wealth transfer for years to come.
The recipients of this wealth, primarily Millennials and Generation Z, have a very different perspective than their predecessors on what it means to be wealthy and how wealth should be saved, spent and distributed.
What drives this new perspective?
SEI’s clientele is predominantly “G1”: first-generation ultra-high net worth individuals who have worked for them and built their wealth on their own.
This segment has often grown up in the middle class, which tends to make them more cautious when it comes to saving and spending their money. Even as UHNW investors, they have a unique view of money, likely influenced by the fact that at one point or another they didn’t feel totally secure financially.
Their children probably never grew up wondering if they would be prepared.
This level of comfort that comes with financial security has created a mindset in many of the next generation where they are less concerned about themselves and their financial success, and feel more comfortable spending or to give money.
Self, family and community
Wealth planning allocation should be divided into three sectors: self, family, community – addressing the needs of each sector in that order.
But the definition of “wealthy” and the guidelines for leading a comfortable life are very different for the next generation.
Advisors and clients are quicker to tick “themselves” off the list and instead think more about providing for their families and/or giving back to their communities.
With the next generation, the focus is more on community and philanthropy. Because they have more confidence that their future and that of their family will be taken care of, their focus shifts to issues in the larger community that can be resolved.
Filling out the “family” element may be easier for the next generation, especially if they were born into a family with an estate plan in place, allowing them to focus on making an impact elsewhere.
Having a greater ease in planning for themselves or their family will allow them to have a more intentional and immediate impact through philanthropy, providing instant gratification to put their wealth to work and make a difference today.
It’s important to figure out what excess wealth looks like for each client based on their spending, and then implement a plan for what’s left based on what’s really important to them.
A renewed vision of philanthropy
As the next generation focuses on giving back to the community, the shift will not only be in their monetary giving, but also in their philanthropic interests. Their parents may have prioritized a more personal involvement in their charitable giving by serving on the board of a foundation or working with friends and family to give back locally.
Not only has philanthropy been a positive way to give back, but affiliations with organizations are also often an essential part of their social life and identity.
The next generation, however, is more interested in making a difference on a global scale.
Rather than being heavily involved in an organization, they tend to focus more on maximizing the impact of their charitable giving and expanding their network to give back outside of their own communities.
Larger global issues like climate change or racial injustice will often take precedence over local community groups.
Differences between generations are neither good nor bad. These are, however, critical factors that advisors should be prepared to address when it comes to their family’s estate plans.
As Millennials and Gen Z begin to own the majority of the world’s wealth, we should expect their needs and expectations to be very different from those of their parents, and now is the time to start conversations. to support them.
Kelley Wolfington is Senior Wealth Management Strategist, SEI Private Wealth Management, which is an umbrella name for various wealth management advisory services provided by SEI Investments Management Corp., a registered investment adviser.