The biggest wealth transfer in history is here, with familiar (wealthy) winners (2023)

America is undergoing an intergenerational transfer of wealth — one that will dwarf any past.

Of the 73 million baby boomers, the youngest is 60. The oldest baby boomers are approaching 80. Born in the middle of the century, the U.S. birth rate soared with the Great Depression and the great leap forward in post-World War II prosperity, and now Baby Boomers are starting to die in even larger numbers, along with Americans over the age of 80.

Most will leave thousands of dollars, a home or none at all. Others leave their heirs with hundreds of thousands, millions or billions of dollars in various assets.

because"give while alive”—including buying real estate, recurring tax-free transfers of inheritance funds, and more—offered millions of people a head start.

It’s no longer “an oncoming phenomenon,” said Douglas Boneparth, a 38-year-old financial advisor whose New York-based firm serves affluent millennials. "It's modern."

It has spilled over into the wider economy, fueling the wheels of some people's social mobility and leaving barriers for those left out due to surging costs of living, housing and raising a family.

The wealthiest 10% of households will give and receive most of the wealth. On this scale, the top 1% — who own about as much wealth as the bottom 90% and are predominantly white — will determine the lion’s share of money flows. The more diverse bottom 50% of households will account for only 8% of the transfer.

A key reason for the imminent inheritance of such large fortunes is the uneven way in which baby boomers have benefited from rising prices in the financial and real estate markets.

Average U.S. home prices riseabout 500%Since 1983, most baby boomers have been in their 20s and 30s, a prime time for starting a family. As U.S. companies grew into global powerhouses, those deep in the stock market reaped even bigger returns: The stock market, as measured by the benchmark S&P 500, has risen more than 2,800% since early 1983, about the time index funds became employees of companies and A mainstream investment for many other middle class professionals. (These figures exclude dividends and are not adjusted for inflation, which far outpaces inflation; consumer prices have risen about 200% over those 40 years.)

Baby boomers, who have benefited most from decades of rising prices for real estate and financial assets, are often already wealthy, or white, or both—in part because of years of housing discrimination and a lack of financial tools and people of color. Ethnographic advice.

But a sweeping wealth transfer, like any general financial phenomenon, will have many nuances: In a hot housing market, a group of low-income earners may be able to move into a home their parents have paid off — or may still receive The meaning of a small windfall is enough to pay off a debt.

Millennials, Generation X and middle-class young baby boomers will inherit a sum -- the seemingly winners -- who will grapple with the enormous headaches of the "sandwich generation," dealing with the costs of caring for aging parents and children.

Every aspect of economic life will be affected by the knock-on effects of the handover: housing, education, health care, financial markets, labor markets, and politics will all inevitably be affected.

The role of tax law

On HBO's hit series "Inheritance," dynastic wealth takes center stage: the Roy children, the sarcastic protagonists, are pitted against each other by the family patriarchs to see who can win the multibillion-dollar family business. Yet, in dark irony, the show shows how much they're both uneven winners.

High-net-worth and ultra-high-net-worth individuals — those with at least $5 million and $20 million in cash or easily liquidated assets — make up just 1.5 percent of all households. Together, they account for 42% of projected transfers by 2045, according to financial research firm Cerulli Associates. As of 2020, that's about $36 trillion -- and that number has likely increased since then.

The size of the transfer depends in part on U.S. tax laws. Individuals can transfer up to $12.9 million to heirs during life or death without paying federal estate taxes ($26 million for married couples).

So while high-net-worth and ultra-high-net-worth individuals could inherit more than $30 trillion by 2045, their projected taxes on estates and transfers are $4.2 trillion.

"With very few exceptions, inheritances are tax-free for children," Rocky Fittizzi, a wealth strategy advisor at Bank of America Private Bank, noted in a conversation recorded with colleagues for clients.

While tax evasion scandals tend to grab the public's attention, legally sanctioned forms of tax avoidance are a primary tool for wealth preservation. Morris Pearl, 60, a former managing director of BlackRock, the world's largest asset manager, cites himself as an example.

"People followed the law pretty well," said Pearl, who started at Salomon Brothers in the 1980s. "I generally don't pay much tax."

Mr Pearl has two young sons who own a "seven-figure" trust fund. He is also the chairman of Patriotic Millionaires, a nonprofit group of wealthy Americans that pushes the rich to pay more taxes.

One of the reasons they don't, he jokes, is that "the basic way to save tax is to not have any income." Earning capital gains in tax-free investments is much better.

"I now have a portfolio of stocks that my wife's father (who passed away long ago) bought in the 1970s—an investment that has grown from a few thousand dollars to hundreds of thousands of dollars," Mr. Pearl famously of. "I've never paid a penny in taxes on all of this and I probably never will because I probably won't sell and then my kids will have millions of dollars in income that never came in any way , form or form of taxation.”

Mr Pearl points out that only a few million people have access to "securities lending", which is borrowing cheap money from banks using the value of a given portfolio as collateral. "You're just lending yourself money," he explained, explaining that in many cases the return on the portfolio exceeds the interest rate on the loan.

Mr Pearl believes the US government "doesn't need more money from the rich" to fund itself. Instead, he supports tax reform because he believes the wealthy have begun to monopolize resources and opportunities in ways that endanger social stability and economic growth.

"I invest in companies that depend on growth," he said. "I'm not selfless."

trying to save more

Leland Presley, a 53-year-old baker at a Publix supermarket in Helena, Alabama, has a future legacy: the modest house he shared with his mother, Glenda, born in 1946, and was restored before his father died at age 7. Cleared the money a few years ago.

Still, he kept asking himself, "Do I have enough money?"

He has no children, but has struggled to make $20 an hour since starting at Publix in 2013 for $13 an hour. He's clinging to an estimated $190,000 in retirement savings, living a modest life in hopes of growing it.

Fiona Greig, head of global investor research and policy at Vanguard, has been working on a report detailing the "self-financing gap" - a lack of "pre-retirement income" that could leave tens of millions of workers unable to afford retirement Fees in their 70s.

In her research, she found that "everyone but the wealthiest" is on a trajectory that is somehow financially unready for retirement. Households in the bottom 50% of income have an averageAccording to the Realtime Inequality tracker, the annual revenue in 2022 is about $28,000.

Mr Pressley hopes to stay healthy enough to work until he turns 67 — and then collect Social Security "if it's still in place".

"I've really been thinking about it and worrying about it," he said, "because old age is really expensive—I've seen it with my parents." Even with Medicare, Glenda Press Glenda Presley's out-of-pocket costs for blood thinners can also cost hundreds of dollars a month.

"So I'm just trying to sacrifice what I can do now," Mr. Pressley said.

sandwiched between generations

Jennifer Doherty, 33, a reporter for a legal trade publication in New York City, lives in Union City, New Jersey, with her husband and toddler. While she's already planned her life around self-sufficiency, she says she's happy with the prospect of a buffer from the legacy of her late grandfather, a physician and biomedical researcher, sometime in middle age.

But her father had to use more of the family coffers than he expected to pay for medical bills and maintain his standard of living. As such, Ms. Doherty has put aside any expectations or desires for a large future inheritance.

In September, despite higher mortgage rates, she and her husband were able to buy an apartment in Union City, where the median home price hovers around $500,000, up about 50% since summer 2020. Her husband is advising a biotech startup -- UP.

But they still feel a little bit pinned down — typical of the “sandwich generation,” upper-middle-class working-age adults who juggle expensive or time-consuming child care and start working as caretaker for parents.

Ms. Doherty has begun commuting her toddler between New Jersey and New Orleans "about once a month" to help care for her 74-year-old mother, who began treatment for pancreatic cancer in March. “Flights are crazy” — airfare prices were up 26.5 percent in February from a year earlier — and daycare costs $1,800 a month, she says, “basically another mortgage.”

"I don't know how other people do it," she said. "It feels like you have to be rich already or be really lucky."

"The Changing Face of Fortune"

Melinda Hightower, 43, a managing director at UBS Wealth Management, is a "marginal millennial". As an industry insider, she is helping the financial world provide what many call "thechanges in wealth’, and at the same time, as a black woman, she was part of that transformation.

The Swiss bank's decision to create a "multicultural client base" with her at the helm in January 2022 is evidence of this trend.

Her grandfather, a World War II veteran, began working independently in Detroit's real estate industry shortly after the war, overcoming prejudice. He has successfully built a well-located portfolio of properties by strategically buying, holding, selling and letting out a variety of properties.

Ms Hightower said the wealth has always been there. "My mom and siblings all own multiple properties, and most work for themselves or have businesses while working on their W-2s."

According to UBS, over the lifetime of baby boomers, integration, immigration and entrepreneurial efforts have resulted in more than one million U.S. high-net-worth investors now being Black, Asian, Hispanic or Latino:a major leapIn a short period of time, the increase is relatively small compared to overall white affluence.

But Ms Hightower is also well aware of what she calls "two worlds". Above-average poverty rates and well below-average household wealth still plague Black and Latino households as a whole. In 2019,typical black familyStill only about $23,000 in wealth.

"I just want to celebrate progress," she said. "But there's still a lot of work to be done."

unequal future

As the wealth transfer unfolds, academics, theorists, and market analysts argue that, in addition to shaping individual outcomes, it will push inequality further into the focus of policy debates.

Joseph Brusuelas, chief economist at consulting firm RSM, thinks change will come — but only if the upper-income wage earners, who still seem to be managing, can no longer comfortably afford families, housing, Elderly care and leisure costs.

Once white-collar workers who are excluded from the transfer of wealth feel the pain, "big corporations will support" a larger welfare state, Mr Brusuelas concluded, "because they will want the government to provide subsidies" rather than bear the cost of providing more themselves. benefit.

"It's not about social justice, it's not about right or wrong, it's not about the bottom line," he said.

The Biden administration wants to speed up the timeline for any public policy to address wealth inequality, or at least develop a liberal blueprint for implementing it. The president's latest budget proposes offsetting spending on social programs by imposing an annual wealth tax of at least 25 percent on households with a net worth of $100 million or more.

Through property taxes, "the middle class is already paying a wealth tax on their main source of wealth," said Bharat Ramamurti, deputy director of the National Economic Council. "The super rich — who have far more wealth than real estate — basically don't."

But David Kelly, chief global strategist at JPMorgan Asset Management, warned that "it's not just a matter of taxing the wealth of the wealthiest and distributing it to everyone else," especially sinceProperty tax likely to be repealed as unconstitutionalby the court.

He and others argue that, despite theThe widening gap between rich and poorIt may be inevitable, but it is still possible to find financially creative or cost-effective ways to improve baseline living standards.

"The real question is not 'Why are the rich rich?' or what to do about it," Mr Kelly argued. "The question is 'Why are poor people poor?' and what to do about it."