That’s a huge disparity so let’s examine what is happening.
In 1998, the Center on Wealth and Philanthropy at Boston College released a report on the estimated amount of household wealth to be transferred in the 55-year period beginning in 1998 and ending in 2052. At that time, they estimated that if wealth grew at a rate of 2 percent a year that by the time the cycle ended in 2052 that the parents of the Baby Boomers would have transferred $41 billion to their children.
However, from 1999 to 2002 there was a decline in the stock market that reflected in a decline in household wealth of 15 percent. By 2004, household wealth had rebounded to 1999 levels. But then, from June 2006 to June 2010, falling asset values fell again and this time by 13 percent according to this Wall Street Journal article.
Economic fluctuations, rising health care costs and longer life expectancies are expected to deplete much of the inheritance that economists have been projecting for the past decade. Despite a 2009 AARP study that found that only about 20 percent of Boomers had received an inheritance and about 15 percent still expected to receive one, the median value of the inheritance was about $64,000, a nice chunk of change but not enough to base a retirement on. The really large payouts are expected to go to those already at the upper end of the economic scale.
Although the Silent Generation, the generation before the Baby Boomers, had built up sizeable estates, a colossal whammy happened on the way to leaving it behind. Those same individuals have helped grandchildren with college educations, paid on mortgages for younger generations, and then have faced much longer life spans running decades longer than expected (along with their ensuing costs) than previous generations. Long-term care and uncovered medical costs haven’t just chipped away at savings, all too often they’ve completely blown any savings out of the water and forced them to financially rely upon the very same children who had expected a sizeable inheritance down the line.
Baby Boomers and especially the members of the Silent Generation often don’t feel comfortable bringing inheritance topics up either because Baby Boomers don’t want to sound greedy or because their parents, raised during the Depression, are uncomfortable talking about money. Baby Boomers that believe they are likely to inherit need to have that communication with their parent(s) to determine what their long term needs will be and how they plan to address them. It’s an opportunity to have their parents set up their inheritance to go into a Safe Harbor Trust to protect those assets later on in the Baby Boomer’s life. A financial planner or an elder law attorney can help set up a strategy to protect assets and prepare for possible long-term care costs. But, it’s also the opportunity for both generations to assess what they want an inheritance to do and have the conversations necessary to make that happen.
The sad news, if indeed it could be called news is that Baby Boomers should expect very little in the way of an inheritance. If there won’t be an inheritance, having the conversation early in the planning process allows the next generation the opportunity to get their financial house in order.
What experts suggest either way is that you consciously make a decision on what you’ll do and then plan accordingly.
