The baby boomer generation comprises people born between 1946 and 1964. They amassed tremendous wealth as they were in the right place at the right time. Many baby boomers will also benefit from the Silent Generation—their parents—who will pass down about $85 trillion by the halfway mark of the century.
While healthcare costs and longer lives will likely cut into the money the baby boomers will pass to their inheritors, many of whom are millennials, trillions of dollars will be handed down. Because of the Great Wealth Transfer, the millennials will become the wealthiest generation in history. But how can wealth managers best capitalize on their demographic trend?
When 421 wealth managers were asked about their expectations of retaining assets when their clients pass their wealth to their inheritors, their answers were very encouraging, as about 80% believe they will retain family assets after the death of their clients. Confidence notwithstanding, 65% of these wealth managers reported losing assets when a client died. The inheritors usually pull all the business away from their parents’ professionals, including wealth managers, lawyers, and accountants.
While the wealth managers know of the Great Wealth Transfer, only about a third are taking steps to benefit when baby boomers die and their wealth transitions across generations. Of the wealth managers taking action, 92% report they aim to avoid “asset leakage” by seeking to build relationships with future inheritors. The data on this approach show it to be generally ineffective. Consequently, there is a very high probability that many wealth managers will lose the assets of their baby boomer clients when they pass away. However, there is a solution for many wealth managers and their clients that benefits all.
A more effective approach is “lives in trust.” This approach is only viable when it fits the needs and wants of baby boomer clients. Depending on circumstances, the legal structures may result in wealth managers investing the money of baby boomers for generations. For example, dynasty trusts can last decades, if not longer. Charitable trusts often extend 30 years. Critically, the most crucial benefit of trusts is that they meet the needs and wants of the family.
To deliver value to the baby boomers with the related result of managing assets for inheritors, wealth managers can take their clients through the lives in trust process:
- Step 1: Prompt The Discussion: The wealth managers must often start the conversation. Discussions with their baby boomer clients about the ability of heirs to handle inheritances can be difficult, resulting in many clients looking to put off the conversation.
- Step 2: Determining Preferred Outcomes: It is helpful when wealth managers drill down on the intentions of the baby boomers, including their confidence in the ability of the inheritors to manage wealth.
- Step 3: Identify And Evaluate Possibilities: By knowing what clients want, various types of trusts can help them achieve their goals, so wealth managers must determine which possibilities are most viable.
- Step 4: Helping Clients Make Smart Decisions: Wealth managers are responsible for providing all the relevant information to their clients, such as the advantages and drawbacks of different choices so that they can make smart decisions.
- Step 5: Taking Action: Based on client decisions, wealth managers help facilitate or implement the desired course of action.
Wealth managers who want to benefit from the Great Wealth Transfer and do the best job for their clients must incorporate “lives in trust” as part of working with baby boomers. This does not mean that building stronger relationships with inheritors should be abandoned. For many baby boomers, “lives in trust” is a powerful solution to their goals and concerns.
Russ Alan Prince is the executive director of Private Wealth and a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.
