US News – As they pass into their golden years, some of the most successful self-made Baby Boomers are preparing to pass the torch – and trillions of dollars – to younger family members in one of the most significant periods of wealth-transfer the world has ever seen.
Over the next three decades, the world’s ultra-high net worth community – made up of individuals whose net worth is at least $30 million – is expected to bequeath $16 trillion in cash, property and assets to the rising younger generation, according to the Wealth-X and NFP Family Wealth Transfers Report published Tuesday.
To put that number in perspective, the most recent U.S. GDP figure from 2013 was just under $17 trillion, according to the World Bank.
On the whole, the report suggests these record wealth transfers will be good for the global economy, even though the transfers themselves come from a group that makes up about 0.3 percent of the world’s total population.
Almost 40 percent of the $16 trillion expected to change hands is tied up in privately held businesses. An estimated 27 percent of the wealth exists in the form of public holdings, and 6 percent is locked into real estate and luxury investments.
But another 30 percent exists in the form of liquid assets. Liquid assets are cash sums or investments that can be easily converted into cash values. Most standard stocks and bonds are classified as liquid assets.
Presumably, this money is then available for its inheritors to spend or invest into their own personal or professional ventures, potentially stimulating the economy.
“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,” according to the report.
And assets tied up in business ventures are not necessarily untouchable, depending on what a business’s inheritor intends to do with the company.
“A significant number of heirs of [ultra-wealthy] individuals will not want to take over the responsibility of running these companies on a day-to-day basis, and this will lead to large opportunities for sales and public offerings of these companies, and ultimately to the release of even more cash for investments and spending by the next generation,” according to the report.
Additionally, an estimated $300 billion in assets from the ultra-wealthy “will take the shape of philanthropic bequests,” with an estimated $86 billion to be donated in the next decade, according to the report. So children and spouses of the world’s most fiscally elite won’t necessarily be the sole benefactors of the ultra-wealthy community’s estates.
The document offers interesting glimpses into demographics and trends among the super rich. The U.S. is home to the world’s largest ultra-wealthy population and is expected to see $6 trillion change hands through inheritance and donations over the next 30 years.
Of the entire ultra-wealthy community, average ages in 2014 were 59 years old for men and 57 years old for women. The average super rich individual has two children and $141 million in assets. Men made up 87 percent of the ultra-wealthy population and held 86 percent of the wealth.
But women’s role among the super rich is expected to change drastically over the next 30 years. Currently, only 34 percent of ultra-wealthy females are self-made, as opposed to those who inherited some or all of their wealth. By 2040, 55 percent of women in the group will be self-made, the report states.
Self-made men and women made up 68 percent of the super rich in 2014. Their fortunes were mostly collected from finance, banking, investment and real estate ventures, according to the report.
The report suggests the wealthy are getting both wealthier and larger in rank. The report estimates there were 211,235 ultra-wealthy individuals in 2014, a 6 percent increase from a year before. That community’s combined wealth is believed to have fallen just short of $30 trillion, a 7 percent increase from 2013.
Growth in 2014 is slightly above average in terms of longer-term trends in the ultra-wealthy community. Over the past 20 year period, the group’s population has grown at an average annual rate of 4.6 percent, with wealth growing an estimated 6.7 percent each year.
This growth trend is expected to continue at least until 2040, at which time both the size of the ultra-wealthy population and their net worth “will have approximately trebled” to more than half a million individuals worth a combined $88 trillion, according to the report. The fastest growing wealth tiers are billionaires and those the report classifies as “at the bottom” — people whose worth is $30 million to $50 million.
The document notes estate and inheritance taxes in some parts of the world can eat up 40 to 50 percent of an individual’s inheritance. In the U.S., for example, there is a 40 percent estate tax on individuals with more than $5.34 million in assets – or $10.68 million for married couples, according to the Charles Schwab financial advising company. And that’s excluding some estate taxes imposed by individual states. So while the upcoming transfers of wealth can benefit individual governments, the report notes that is usually not the intent of the deceased.
“Without prior planning, UHNW individuals could lose up to half of their fortunes through inheritance taxes,” according to the study. “Preparation is key, and insurance solutions are one of the most efficient ways to transfer wealth to the next generation.”
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