Passing on wealth may seem intuitive, but there may be more to legacy decision-making than you’d think.
America is about to see a massive transfer of wealth from baby boomers, who’ve stockpiled an estimated $30 trillion. The “Me Generation” will probably spend some of its fortune, but there’ll be a lot remaining to pass along to their heirs. Research shows that between 2031 and 2045, as much as 10% of U.S. wealth could change hands every five years.
Think Advisor’s recent article, “Who Leaves an Inheritance, Who Doesn't,” says that some people are more inclined to leave an inheritance than others. The reasons for doing so aren’t all intuitive.
In an effort to better understand what influences an individual’s intention to leave an inheritance, researchers at Kansas State University analyzed data from the 2016 Survey of Consumer Finances. The survey is given every three years by the Federal Reserve. It gathers data about U.S. household balance sheets, income, expenditures, key demographics and attitudes. After controlling for net worth, household income and other demographic characteristics, KSU used a binary logistic regression model to parse out the variables associated with the expectation of leaving an inheritance.
The results revealed the traits that are closely linked to bequest intentions and those that aren’t. They found that children aren’t a significant predictor of whether a person is likely to leave an inheritance. Likewise, owning cash-value life insurance or being a habitual saver doesn’t seem to play a role in an individual’s bequest rationale.
The top predictor most associated with passing on wealth is an individual’s own expectation of receiving an inheritance. The survey found that people were nearly 16% more likely to leave money to their heirs. However, those who actually did receive an inheritance, were 7% more likely to want to do the same for their own family.
It is not a shock, but a second leading predictor is a person’s attitudes about leaving an inheritance to others. Those respondents who ranked this goal as important, are 9.5% more likely to expect to leave an inheritance, as opposed to those who said it wasn’t important.
It is notable that business owners prioritize inheritances. They’re approximately 10% more likely to do so than non-business owners. Try to balance the competing priorities of maintaining a comfortable lifestyle in retirement, while leaving behind an inheritance to your heirs. For many families, the big issue in their planning will be focused on values and principles, rather than estate taxes.
Reference: Think Advisor (October 19, 2018) “Who Leaves an Inheritance, Who Doesn't”