The largest intergenerational wealth transfer in US history is about to take place — though the vast majority of Americans are unlikely to inherit much money at all.About $105tn is projected to be passed down from older generations over the next quarter century, according to research firm Cerulli Associates, an amount roughly equal to global gross domestic product in 2023.Rising stock markets and home prices, as well as inflation, have fattened the estates that members of the baby boom generation, born between 1946 and 1964, are expected to leave their heirs. The latest inheritance projection by Cerulli is 45% higher than the 25-year forecast the firm made only three years ago. US gifts and inheritances are expected to total $2.5tn next year alone.“About 80% of the wealth held today is going to be in motion,” Chayce Horton, the lead author of the Cerulli report, said in an interview. “The ratio of wealth expected to be changing hands in the next 25 years is significant, and much greater than what we even saw a decade ago.”Yet even as the assets of millions of ageing Americans are passed on, the share of the US population that will benefit from inherited money has remained static, a sign of how accumulating family wealth has become more concentrated among the most affluent households.At the same time, money passed down from one generation to another accounts for a growing share of the overall wealth of heirs, rising relative to income from work or investments. Inherited money represented about a quarter of the net worth of households that received it, a Bloomberg analysis of the Federal Reserve’s 2022 Survey of Consumer Finances found, up from roughly 10% in the late 1990s.“We’re becoming less of an economy that promotes entrepreneurship and production and more of an economy focused on inheritance and dynasty,” said Chuck Collins, Director of the Program on Inequality and the Common Good at the Institute for Policy Studies.Collins, whose great grandfather founded the hot dog and lunchmeat maker Oscar Mayer, gave up his inheritance when he was in his twenties. He is now a member of the Patriotic Millionaires, a nonprofit group of affluent Americans that pushes for the wealthy to pay higher tax rates.Receiving any funds from a deceased family member remains the exception in the US, not the rule. Just one in five American households have received a substantial gift, trust or inheritance in recent decades, according to Bloomberg’s analysis.Inherited wealth is expected to become increasingly concentrated among the most affluent, according to Cerulli. The firm estimates that more than half of the wealth transferred between generations through 2048 will come from households with at least $5mn in investible assets. Only about 2% of US households meet that threshold.The figures lend support to an idea that has long had currency among economists but that has been difficult to confirm — that the share of overall wealth derived from inheritance is far higher than it appears. A 2017 paper argued that inherited money had accounted for more than half of total wealth in the US and Europe since the 1990s, and that “self-reported inheritance flows are implausibly low.”“Inheritance is still the most important factor in terms of wealth concentration,” said Kaushik Basu, professor of economics at Cornell University and former chief economist at the World Bank.The trillions of dollars set to be passed on in coming years could create more social mobility for younger generations, even though its greater concentration among the wealthiest Americans is likely to create more obstacles for lower-income households and exacerbate inequality.“Markets may still flourish, and overall economic growth may continue, but the polarisation between the born-poor and born-rich will become more acute,” Basu said.He added that many of the economic advantages of family wealth are conferred indirectly, through access to education and other opportunities.As more members of the massive baby boom generation die, the annual rate at which wealth is being passed on is expected to increase until the end of the decade.Millennials, born between 1981 and 1996, are expected to inherit more than $45tn by 2048, including some $3.9tn that year alone. Generation X, sandwiched between the baby boomers and millennials, will see their annual inheritance levels peak in 2038 at just shy of $2tn, according to Cerulli.Wealth isn’t only cascading down to younger generations, it also is moving sideways. Before reaching younger heirs, inheritances are often transferred to surviving spouses and partners. Since women tend to outlive men, they are expected to receive a large share of the fortunes being passed on.“A significant amount of the wealth that is held today is believed to be controlled by men,” said Cerulli’s Horton. As those men die, “we expect that wealth to be much more equitably distributed on a gender basis.”Cerulli estimates that women will inherit nearly half of the total projected value of inheritances over the next 25 years.US tax policy has made it easier for wealthy heirs to hang on to more of the money they inherit. President-elect Donald Trump wants to extend part of his 2017 tax-cut package that doubled the estate-tax exemption from $5.49mn to $11.18mn.For many older Americans, money handed down from previous generations has shaped their own planning. Alan Jewett, a 75-year-old retiree in Delaware, and his wife received an inheritance of nearly $3mn from her childless aunts in 2014, after the couple had already put both their children through college and bought a home.“Having money changes the way you look at things in the sense that it gives you and your family a feeling of security,” Jewett said. He and his wife gave part of the inheritance to their kids and set up an irrevocable trust for their three young grandchildren.Some heirs say they have used inherited money to prepare for their own health and elder-care expenses. Lee Robin Gebhardt, a 63-year-old living in Putnam County, New York, said she invested a $150,000 retirement account that she received from her father, who died in 2020, in her long-term care. Gebhardt, who plans to work for at least another two years, has enough money put away to last her until she’s 110.“That will take some pressure off my children,” she said.Other relatively wealthy baby boomers have decided to pass on some of their wealth while they’re still able to see its effects for themselves.“I’ve seen an increasing focus on ‘giving while living,’ where people provide for their family’s needs during their lifetime,” said Jared Jones, senior advisor at Omega Wealth Management. “There’s definitely a big focus on not waiting until one passes away to help and witness the benefits of the wealth from the family.”
