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Inheritance boom: The 'largest wealth transfer in history' on the horizon

Balance Sheet
Inheritance boom: The 'largest wealth transfer in history' on the horizon

Cash-strapped Gen Xers and Millennials without jobs or even a decided career path may not have to worry much about money in the long run, especially if they come from a wealthy family.

A new report suggests they can count on getting big bucks from their parents or other wealthy family and friends with the largest wealth transfer in history now underway worldwide.

According to the Wealth-X and NFP Family Wealth Transfers Report, at least $16 trillion (U.S.) of global ultra high net worth (UHNW) wealth will be transferred to the next generation over the next 30 years.

Almost 40 per cent of this family wealth transfer, or about $6 trillion, is expected from the largest group of UHNW benefactors in the United States, while less than 1 per cent is expected to be transferred in Africa, the smallest amount of any region, the report says.

In Canada, the ultra-rich are expected to transfer $310 billion to the next generation, which is equal to 49 per cent of their current total wealth.

“The world’s wealthiest individuals are approaching retirement, and are starting to implement their wealth succession plans,” the report states. “We are therefore entering a new and unprecedented era of global family wealth transfers and giving, against the backdrop of an expanding UHNW population and rising UHNW wealth.”

The report is calling it the largest wealth transfer in history, “creating a new crop of ultra wealthy individuals,” while urging the ultra rich to plan their wealth handoff to avoid losing their fortunes to government taxes or from poor investment choices.

Taxes to take a bite

“Without prior planning, UHNW individuals could lose up to half of their fortunes through inheritance taxes. Preparation is key,” says the report, which not surprisingly suggests insurance solutions since it comes from NFP Insurance Services, Inc.

“The importance of preparing for wealth transfers cannot be overstated.”

The report says UHNW individuals ages 80 and older are worth five times more on average than those below 40 years of age. The average age of a UHNW individual is 59 for men and 57 for women.

It says more than two-thirds (68 per cent) of the ultra rich are self-made individuals, while highlighting the importance of not letting the next generation blow their hard-earned bucks.

“It is crucial that the first generation transmits their business ethos and values to prevent the proverb ‘shirtsleeves to shirtsleeves in three generations’ from coming true,” the report says.

“The family wealth transfer will offer the opportunity for new ultra wealthy individuals to create more wealth than they initially received through entrepreneurial activities, and help transmit the original values and legacies even more successfully.”

Charities will also be big beneficiaries of this massive wealth transfer. The report forecasts that about $300 billion in charitable donations will be made over the next 30 years.

North Americans will account for about 57 per cent of those pledges, followed by 18 per cent from Europe and about 17 per cent from Asia.

The report says numbers in Asia are steadily increasing, citing Asian billionaires who are giving back and creating role models for future philanthropists. That could help to bridge the gap between rich and poor in the region.

“This trend of increased philanthropic activity in emerging markets could be beneficial in that it reduces inequality between nations and raises awareness of social problems,” the report notes.