The decision to pass on wealth may seem intuitive; however, there may be more factoring into legacy decision-making than one may assume. America is on the cusp of a massive transfer of wealth courtesy of baby boomers, who are sitting on an estimated $30 trillion. While the “Me Generation” will likely spend some of its collective fortune, there will be plenty left to pass along to their heirs. Between 2031 and 2045, as much as 10% of U.S. wealth could change hands every five years.
For financial advisors, this represents an opportunity to cultivate relationships that will carry over to the next generation, but it also has its challenges. Namely, some individuals are more inclined to leave an inheritance than others — and for reasons that aren’t all intuitive.
To better understand what influences an individual’s intention to leave an inheritance, my colleagues at Kansas State University and I analyzed data from the 2016 Survey of Consumer Finances.
This survey is administered every three years by the Federal Reserve and collects information about U.S. household balance sheets, income, expenditures, key demographics and attitudes. After controlling for net worth, household income and other demographic characteristics, we used a binary logistic regression model to parse out the variables associated with the expectation of leaving an inheritance.
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The study turned in some surprising results — not just in the traits closely linked to bequest intentions, but also in those that are not.
Notably, children are not a significant predictor of whether an individual is likely to leave an inheritance. Similarly, owning cash-value life insurance or being a habitual saver does not seem to play a role regarding an individual’s bequest motives.