The greatest intergenerational wealth transfer in history is underway, and people are unprepared, according to Michael Pelzar, head of investments at Bank of America Private Bank.
“Nearly half of wealthy families don’t have the most basic elements of estate planning in place,” Pelzar said. “What that means is that families are woefully underprepared for that wealth transfer that’ll be taking place.”
Baby boomers alone are projected to pass down over $68 trillion over the coming years. However, Pelzar explained that nearly half of wealthy families do not have the necessary preparations in place, such as a will, power of attorney, or healthcare proxy, to allow for easy inheritance.
“When problems arise with wealth transferring from one generation to the next, it’s when communications have broken down or have not taken place,” Pelzar said. “People aren’t educated on the value of trust and their benefits.”
Christina Lecholop, a certified financial planner at CAPTRUST, attributed this lack of action on estate planning to the “expanding and complex” investment universe, a shift in the definition of retirement, a changing understanding of careers, and the geopolitical climate.
“People tend to delay because of uncertainty,” Lecholop said. “There’s a lot of headlines. There’s a lot of noise that can tell people not to take action when I think that they should. And while that’s all a very real consideration to pay attention to, it’s important to also get started, and when people hold on, they miss out on the opportunities.”
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Lecholop emphasized the benefits of working with a professional to help understand finances and establish goals and priorities that help dictate investment decisions.
“Having a plan, even if it’s something as simple as replace my income when I turn 65, that is a great starting place,” Lecholop said. “From there, you can know ‘How much do I need to save? What kind of growth rate do I need? How many years do I need to save?’ There’s just some real simple things, and then you layer on as you go.”
“It’s important to start somewhere with the goals,” Lecholop continued, “and then when you do invest, invest with purpose. Know what you’re investing for, choose those right vehicles, and understand those vehicles well.”
This kind of planning can help set people up for smoother transfers and help avoid passing down “strife” to other generations, Pelzar said.
“No generation wants to pass down problems to the next, and so what’s important is we have the planning in place, and we do the right communication and education up front,” Pelzar said.
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