Ultra-high net worth individuals around the world will transfer at least $16 trillion to the next generation over the next three decades, according to a report released Tuesday by Wealth-X and National Financial Partners, which provides benefits, insurance and wealth management.
This will be the largest wealth transfer in history, the report said, and will create a new crop of ultra-wealthy individuals.
Some 40% of ultra-wealthy benefactors, representing $6 trillion, are located in the U.S., it said.
The report emphasized the importance of early planning to ensure the successful transmission of assets and values from the benefactor to its beneficiaries.
Last year, the Center on Wealth and Philanthropy at Boston College updated its frequently cited 55-year wealth transfer projection. Its new research estimated that $59 trillion would be transferred to the next generation between 2007 and 2061.
The Wealth-X and NFP report said ultra-high net worth individuals 80 years or older were worth five times more on average than those 40 years and younger, who have yet to accumulate the wealth they will ultimately transfer to the next generation.
Liquidity also rises with age, in both absolute and relative terms. According to the report, 30% of the net worth of ultra-wealthy individuals who are expected to transfer their wealth is in liquid assets. This will allow for next generation more flexibility to invest and spend their inheritance as they wish.
The report said $6 trillion of wealth concentrated in the ownership of privately held businesses was also due to be transferred to the next generation.
However, many heirs will not want to assume the day-to-day responsibility of running these companies. This will lead to large opportunities for sales and public offerings of these companies, and ultimately result in even more cash for investments and spending by the next generation.
The research found that 68% of ultra-high-net-worth individuals passing on their wealth were self-made. The report said it was crucial that the first generation transmit its business ethos and values to prevent the proverb “shirtsleeves to shirtsleeves in three generations” from coming true.
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 will help transmit the original values and legacies even more successfully.
The report said the wealth transfer would include philanthropic bequests, amounting to an expected $300 billion in charitable donations.
Be prepared, the study warned. Without prior planning, ultra-wealthy individuals could lose up to half of their fortunes through inheritance taxes.
— Check out That $41 Trillion Wealth Transfer Now Officially $59 Trillion on ThinkAdvisor.