What is the “great wealth transfer,” and who’ll benefit from it?

Economists and financial planners are all excited about the upcoming “great wealth transfer” — a huge movement of wealth from one generation to another. But the beneficiaries are likely to be concentrated at the top of the income spectrum, and some who expect to inherit could be in for an unpleasant surprise.

More than $120 trillion in assets will pass from older Americans to their heirs and favored charities over the next 25 years, mostly through inheritance after death, according to Cerulli Associates, a Boston-based wealth management and research firm. Some of it, though, will be gifted while the donors are still alive.

The benefactors are primarily baby boomers, transferring some of the substantial wealth many accumulated in the post-World War II economic boom and from stock and real estate appreciation in recent decades. The recipients will be predominantly Gen Xers, at least initially. But by 2039, millennials are forecast to outpace them as the biggest inheritors of intergenerational wealth, increasingly joined by Gen Z.

Julia Gibbons, a 27-year-old government contractor, is a millennial who’s already benefited from this wealth transfer — her parents paid for her college education. Her mother is a teacher and her father works for the State Department.

A few years ago, her parents revealed that they had put more money aside for her.

“My parents pulled me aside, and they were like, ‘Hey, we’ve saved up some money for you at a financial institution. Here’s the guy who’s running your account and trading on the market for you, so that you can be responsible for this in the future,'” Gibbons said. “And they emphasized to me: ‘This money is for a down payment on a house. This is not free-spending money.’ It’s not an insane amount. But that’s relative because somebody else would not have any at all, so any amount would be insane.”

Girard Bucello, 29, has also benefited from in-life gifting, years or decades before he’d have reason to expect an inheritance. He’s 29 and works as a proposal writer in the Washington, D.C., area.

“I have benefited from the financial planning my parents put into my higher education as well as down payment assistance for the purchase of a new home,” said Bucello. His parents are professionals in their 60s and pretty well-off. But they’ve told him they’ll be spending their money to live well in retirement rather than trying to hold on to it to leave an inheritance.

“My expectation is not actually to receive anything. That is not something I can or should plan around,” Bucello said.

But a massive inheritance wave is something wealth managers are planning around, said Andy Smith, executive director of financial planning at Edelman Financial Engines. “This is a huge part of my client meetings now,” he said. “The largest transfer of wealth in history, and it’s poised to make many new millionaires.”

In a report published back in 2021, Cerulli Associates calculated that over the coming 25 years, $84 trillion would be passed from older to younger generations. 

Cerulli senior analyst Chayce Horton just crunched the numbers again. “In 2024, that number has increased to $124 trillion over the next 25 years.”

There are a few reasons: inflation, soaring stock and home prices, plus increasing wealth concentration among the richest and oldest Americans. Horton said half of the great wealth transfer will come from just the top 2% of households — those dubbed “high net worth” by financial planners.

“Those with $10 million or more in net worth, roughly, now control about half the wealth, whereas that was closer to 40% the last time we did this,” said Horton. “Looking back to 2011, even adjusted for inflation, we’ve seen privately held wealth essentially double in the U.S., from around $80 trillion to around $155 trillion.”

“And the majority of the wealth they’re transferring is going to be left to the top 2% of heirs,” Horton said. “Which is obviously not a widespread equitable distribution.”

And it’ll take a while for millennials and Gen Zers to share in the largesse. “It’s not like a lifeboat is coming any time soon,” he said.  

For some, it’s probably not coming at all. Financial services firm Northwestern Mutual regularly asks Americans about their inheritance plans and expectations. And certified financial planner Jessica Majeski said they don’t add up.

“More people are expecting to receive an inheritance than planning to leave an inheritance,” she said. Twenty-two percent of boomer and Gen X households plan to leave money. “Yet there’s 32% of millennials and 38% of Gen Zers who hope or expect to receive an inheritance.”

Northwestern Mutual found that a majority of them consider the money critical to their financial security and retirement. Majeski isn’t exactly surprised.

“All the stories they hear about Social Security potentially not being there for them — I think it creates some angst and an expectation that they’ll need an inheritance,” she said.

But she cautions clients that relying on one is bad financial planning.

“It’s going to be gravy on top, right? We’re not going to build that into the plan. Because anything can happen. The parent that you thought was going to leave you an inheritance could live well into their 90s,” Majeski said. “The statistic that always blows me away is for a 65-year-old couple that’s married, there’s a 25% chance that one of them will live till 98 years old. There’s a 50% chance one will make it to 94, 75% that one will make it to 90.”

In his financial planning practice, Andy Smith at Edelman Financial Engines finds that most younger clients have pretty prosaic ideas about how to use the money from a family gift or inheritance.

“When I ask, ‘How do you think you’re going to spend a $100,000 windfall?’ maybe 40% say it’s going to go to housing, paying bills, payments on debts or loans,” Smith said.

He said they’re also often unprepared for it. “When I have these conversations with the kids, they’re stunned a lot of times. And it’s not like Mom or Dad or Grandma and Grandpa held anything back. But just, flaunting of money, or even discussion of money, wasn’t a regular occurrence,” he said.

Bucello doesn’t think getting a one-time windfall from his parents would be license to change his entire life. 

“Would I quit my job? Absolutely not. Move to a bigger house? Almost certainly not,” Bucello said. But he might use some of it to help a friend or relative in need, he said. Or take a long vacation.