Great Wealth Transfer: What it might mean for investors

“You can’t take it with you.” That’s why it’s common practice for older generations to transfer their wealth to their families, friends, or charities upon their death.

However, the magnitude of the coming inter-generational wealth transfer is something new. Baby Boomers, the oldest of whom are reaching their late 70s, are one of the largest and wealthiest generations in history. With life expectancy for Canadians averaging around 82 years[1], as this demographic group continues to age, it sets the stage for a significant generational transfer of wealth. There will be implications for those passing on their assets, for those inheriting, for financial and accounting professionals, and for financial markets as a whole.

In this article, we’ll cover:

• What is the Great Wealth Transfer?
• Who will be the recipients of the wealth transfer?
• Are investors prepared for the Great Wealth Transfer?
• Getting prepared

What is “The Great Wealth Transfer”?

 According to the UBS Global Wealth Report 2024, roughly US$83 trillion in personal wealth is expected to be passed on within the next 20 to 25 years, with a significant amount of these assets expected to be transferred within 10 years.[2]

In many regions, including North America, populations are aging, and members of both the Silent Generation and Baby Boomers will transfer their wealth as they pass away. It's the same situation in Canada, with younger Canadians set to inherit a total of $1 trillion from their parents over the next few years.[3] Chartered Professional Accountants Canada (CPA Canada) predicts the “largest generational wealth transfer in history”.[4]

The reason that the wealth transfer is so significant is the relative size of the Canadian Baby Boomer cohort (those born between 1946 and 1965), were the largest generation in Canada for 65 years, only recently overtaken by the Millennial generation (born between 1981 and 1996) in 2023 [5].

Who will be the recipients of the wealth transfer?

While many are focused on the children of Baby Boomers inheriting the wealth in transfer, the next generation won’t be on the receiving end. At least, not at first. Interestingly, UBS’s report calls the wealth shift the “great horizontal wealth transfer” because in many cases, the wealth will transfer to the surviving spouse before it passes on to children. According to UBS, an “inheriting spouse will typically own and hold onto this wealth for an average of four years before passing it on”[6] – which means over 10% of this massive wealth transfer will be transferred to the next generation by women for the first time in history.

It's estimated that by 2030, U.S. women will control most of the Baby Boomers’ assets, representing US$30 trillion, an amount close to the U.S. annual gross domestic product.[7] In Canada, by 2028, women are slated to control $4 trillion in assets, almost double what they currently control.[8]

Of course, despite so many assets passing to the surviving spouse, the transfer of wealth will largely pass to their Millennial children , either directly or upon the death of the surviving spouse. 

Are investors prepared for the Great Wealth Transfer?

People often don’t like to talk about money. And they certainly don’t like to talk about death. So, open family conversations around death and wealth transfer are often uncomfortable, and many simply avoid it all together. Is it any wonder that many are unprepared for the financial implications of the death of a spouse or a parent?

According to some advisors, their Baby Boomer clients are expressing concerns over how their children will handle the coming windfall.[9] Different generations view and invest money differently, and some Baby Boomers are concerned about whether their financial legacy will last.

But for those who will transfer wealth to their spouse and/or children in the next few years, how prepared are you?

• Do you have a current will that clearly defines how you want your wealth to be distributed?
• Are your assets optimized from a tax perspective to help preserve that wealth upon your death?
• Does your spouse know and understand your wishes?
• Have you brought your children or other heirs into the conversation? And are your adult children prepared to handle the transfer of wealth?
• If you engage any professional services, such as an accountant, financial advisor, lawyer, etc., have you introduced your children to them?

If your estate plan is firmly in place, it’s time to open the lines of communication to prepare your spouse and heirs for what’s coming.

Getting prepared

For all parties involved, the best thing to do is start the conversation. Understand what plans are in place, the wishes of parents and the needs of adult children. Seek professional advice if needed.

For older generations, ensure your Will and estate plan is in place. Talk to your children about those plans, introduce them to any financial professionals you use and trust, and acquaint them with how your assets will be distributed.

For younger generations, if your aging parent hasn’t yet broached the subject, consider starting a conversation about their wishes, and how they want their wealth divided. If you’re an inexperienced investor and are likely to inherit significant assets, it’s time to get informed about investing.

References

^{[1] Statistic Canada, Deaths 2022 https://www150.statcan.gc.ca/n1/daily-quotidien/231127/dq231127b-eng.htm}

^{[2] UBS Global Wealth Report 2024 https://www.ubs.com/content/dam/assets/wm/global/insights/doc/global-wealth-report.pdf}

^{[3] Agrba, Liza The next wave of trickle-down wealth is upon us, CPA Pivot Magazine, September 2023 https://www.cpacanada.ca/news/pivot-magazine/trickle-down-wealth}

^{[4] Agrba, Liza The next wave of trickle-down wealth is upon us, CPA Pivot Magazine, September 2023 https://www.cpacanada.ca/news/pivot-magazine/trickle-down-wealth}

^{[5] Statistics Canada, Millennials now outnumber Baby Boomers in Canada https://www150.statcan.gc.ca/n1/daily-quotidien/240221/dq240221a-eng.htm}

^{[6] UBS Global Wealth Report 2024 https://www.ubs.com/content/dam/assets/wm/global/insights/doc/global-wealth-report.pdf}

^{[7] Heaven, Pamela Posthaste: The ‘great horizontal wealth transfer’ is coming – and it could change a lot, Financial Post July 19, 2024 https://financialpost.com/news/women-inherit-trillions-great-horizontal-wealth-transfer}

^{[8] Heaven, Pamela Posthaste: The ‘great horizontal wealth transfer’ is coming – and it could change a lot, Financial Post July 19, 2024 https://financialpost.com/news/women-inherit-trillions-great-horizontal-wealth-transfer}

^{[9] Dragicevic,Nina The great wealth transfer: How adult kids can start talking to their parents about it, Globe & Mail, February 6, 2024 https://www.theglobeandmail.com/investing/personal-finance/article-the-great-wealth-transfer-how-adult-kids-can-start-talking-to-their/}