Wise Inheritor Protecting, Preserving, and Enjoying Your Legacy

Chapter 1 The Great Wealth Transfer Money is always there, pockets change. --Gertrude Stein How quickly the time went. We've gone from the Pepsi to the Probate Generation. Remember those television ads inviting us to join a carefree group of beautiful young people romping on the beach? Now we 76 million baby boomers are middle-aged and laden with responsibilities--jobs, mortgages, children, and aging parents. But we are still sought out by advertisers. They know we're coming into a lot of money, the largest transfer of wealth the world has ever seen. Our "great expectations" were first quantified by two Cornell University researchers in 1993. Robert Avery and Michael Rendall estimated that the baby boomers would receive at least $10.4 trillion in inheritances from their parents between 1990 and 2040. This would account for 115 million bequests, according to the study, starting with 900,000 in 1990, rising to 2.8 million in 2005, peaking at 3.4 million in 2015, and then dropping off gradually until 2040. The annual amount of the bequests would start at $40 billion the first year, grow to $217 billion in 2005 and peak at $336 billion in 2015, before winding down in the other direction.1 As vast as these numbers are, they will likely turn out to be much larger. The prediction was made using 1989 dollars. Inflation, plus the tremendous run-up in the prices of homes and stocks in the 1990s, could double or even triple the size of the bequests. A more recent study released in 1999 from Boston College that covers a longer period, includes a larger population, and takes into account the prosperity surge of the 1990s, forecasts a transfer between 1998 and 2055 of at least $41 trillion and as much as $136 trillion. This study by John Havens and Paul Schervish also includes the wealth passed from the boomers to their children.2 Any way you slice it, this intergenerational transfer of wealth is unprecedented. But what does it mean for our economy? And for the millions of inheritors? It's helpful to think of this movement of assets not like an avalanche of wealth, but more like the slow and inexorable movement of a glacier. In any given year, says Avery, the money left through inheritance nationwide is not enough to fundamentally alter the economy or impact a recession. But for an individual, an inheritance can be life changing. Avery estimates that an inheritance managed wisely can boost an individual's wealth by 25 percent or more. "There are a lot of people in the world counting on this money," says Olivia Mellan, a Washington, D.C., psychologist who specializes in money issues. These people view inheritance as freeing or transforming. Prospective inheritors shouldn't put their lives on hold while awaiting their bequests, however. While it's possible to make an educated guess about how much money an entire generation might bequeath, it is much more difficult to predict one family at a time. Members of the older generation, though they hold more than half the nation's wealth, are living longer and therefore spending more money than previous generations. As families are discovering, the cost of medical care during the last few months of a loved one's life can easily consume an inheritance of several hundred thousand dollars. One woman who helped care for her late father recalls, "We were running through his money like water. Six more months and he would have been bankrupt." Instead, she says, "There will be a nice hunk of money to invest in my son's college fund. I never really expected that." The Bequest Breakdown Some baby boomers will get their inheritance in dribs and drabs, or not at all. In fact, many Americans will be left out of this transfer. A full one-third of all assets bequeathed, or $3.5 trillion, will go to the ultrarich, the top 1 percent of the nation's families, according to Avery and Rendall. APerry, Ann is the author of 'Wise Inheritor Protecting, Preserving, and Enjoying Your Legacy', published 2003 under ISBN 9780767908351 and ISBN 076790835X.