INTERGENERATIONAL WEALTH TRANSFER: Conflicting Values Across Generations

One of the paradoxes of life is that the traditional rewards of success—affluence, status, leisure time—quickly erode the values that created that success. Hard work, frugality, and long-term perspective usually lead to prosperity and eventually to wealth. But having achieved a measure of affluence, those characteristics are typically lost in the second and third generations. Thus, the common saying, “The first generation creates wealth, the second tries to preserve it, and the third generation depletes it.” Creators of wealth go to great lengths to avoid that kind of depletion, only to find that no matter how many advisors or testamentary safeguards one puts into place, wealth without values, character, or experience is difficult to sustain over several generations. It doesn’t have to be this way.

Many factors contribute to our children’s development and how they relate to money and possessions. Growing up in the ease of affluence does not necessarily mean they’ll be spoiled and selfish any more than struggling through the difficulties of poverty guarantees good character development. Consequently, what we teach our children and grandchildren about the purpose, meaning, and value of money will be far more significant than the amount of money we leave them.

What we teach our children and grandchildren about the purpose, meaning, and value of money will be far more significant than the amount of money we leave them.

 

The most important inheritances, then, are non-financial—intentional time together, financial mentoring, and a sense of value and personal worth independent from impressing others with one’s wealth or importance.

*     *     *

The term “The Greatest Generation” generally refers to people born in the early 1900s to the mid-1920s. The common characteristic is that they lived through and experienced the hardships of the Great Depression and, just over a decade later, joined up as soldiers, sailors, and factory workers.

In most of my conversations with members of that “Greatest Generation,” many of whom were veterans and their spouses, they viewed their own sacrifices and acts of service as “something that needed to be done, so we just joined up and did it.” When WWII was finally over, there were seldom displays of bragging or chest-thumping. Most who survived came home and resumed their lives.

When the elder George H. W. Bush was running for President, he resisted speaking about himself. Bush was raised in this era that valued humility as a virtue and self-aggrandizement as distastefully prideful. His campaign staff continued begging him to discuss his accomplishments as a decorated WWII Naval aviator, Ambassador to the United Nations and the People’s Republic of China, head of the CIA, and Vice President. Finally, at the urging of his staff, Bush relented and began to talk about some of his accomplishments. Immediately after his campaign speech, he got a call from his wife, Barbara. “George,” she said, “You’re talking about yourself again.” Bush reverted to form and told his staff, “No more “I’s” in the speeches. No more self-promotion.”

The term “Greatest Generation” may seem to suggest deficiency in previous generations and a general decline in the culture and in every identifiable segment of the population since. But does it?

*     *     *

The post-war Baby Boom (born 1946-1964) was as much a description of unparalleled economic expansion as it was the fertility rate. The succeeding demographic segment is rather unceremoniously referred to as “Generation X” (born 1965-1980), and Millennials (born 1981-1996) who are often referred to as the “Me Generation”. To whatever extent Millennials seem concerned with “Me,” Generation Z (born 1997-2012), the social media generation, seems consumed with self-image and the importance of their personal brand.

Baby Boomers (born 1946–1964) entered the workforce during the strongest economic “boom” the world has ever seen, amassing wealth through real estate and the stock market. Between 1983 and 2023, home values grew 500% while the stock market’s gains were even bigger. According to the Federal Reserve, household wealth skyrocketed from $38 trillion in 1989 to $140 trillion in 2022. And by 2023, half of that wealth, or roughly $78 trillion in assets, belonged to members of the Baby Boomer generation. ¹

Over the last 50 years, these characteristics—modesty, frugality, and long-term perspective—have created a phenomenal treasure trove of wealth for the Baby Boom generation. Between 2023 and 2045, Gen-Xers (born 1965–1980) and Millennials (born 1981–1996) are queued up for an inter-generation transfer of $84 trillion in cash and assets. That represents the greatest intergenerational wealth transfer in history—20 times the budgetary expenditures for the entire United States government in 2022. ²

I’ve spent a great deal of time with thousands of high-capacity donors over the last 40 years, most of them Baby Boomers, who are generally characterized as financially conservative, not showy. They typically drive older cars and live in far more modest houses than they can afford.

Below are a couple of thoughts on planned giving throughout the next 20 years.

THE CULTURAL DISCONNECT

Boomers who cherish their children and grandchildren are hesitant to dump a small fortune into their laps without sufficient guidance. Two of their chief concerns are end-of-life expenses and various inheritance wars. Family members who have gotten along with each other often undergo radical changes when there is a very large amount of money to divide. Their concerns are very real and often rise to a level that paralyzes them with indecision.

THE SALIENT QUESTIONS

I am privileged, along with many other planning professionals, to have enabled donors to move beyond the paralysis of indecision. Our process has no trademark secret, and any nonprofit fundraiser or planned giving officer can ask these same questions to get the conversations started.  I have found asking the following questions lead to great conversations about planning.

1. Do you know what percentage of your assets you would like to give your children?

2. What percentage of your children’s total inheritance would you like to give outright at death, to give as an ongoing income stream, or to give as lump sum payments over a period of time?

3. Would you prefer the social capital you cannot transfer to your family (i.e., taxes) to go to the Internal Revenue Service, or would you rather give it directly to a charity you choose?

Each of those three big questions requires some clarification, but the essential point is that organizations have not because they ask not. For a fuller discussion of the interview process, see Helping Donors Answer Their Most Perplexing Questions.

In the last seven years alone (2016-2022), we’ve helped over 4,000 individuals or families clarify their values and goals into a comprehensive estate plan. Before planning with us, only 8% had estate plans that contained a charitable gift. After several sessions discussing their values and objectives, 3,274 of the just over 4,000 chose to include a charitable gift in their estate plans.  This change can largely be attributed to institutions maintaining relationships with their current and past donors.

The most important inheritances, then, are non-financial—intentional time together, financial mentoring, and a sense of value and personal worth independent from impressing others with one’s wealth or importance.

Plenty of Millennials and Gen-Xers, as well, have adopted a lifestyle and perspective passed down from their parents and grandparents—service, sacrifice, and humility. One donor in his early thirties, well on his way to accumulating a multi-million-dollar fortune, asked me, “How do I keep my rapidly growing net worth from destroying my family?” Even at his young age, he recognizes the dangers that can arise in family systems when wealth is taken for granted, regardless of how intentionally one parents their children.  His forward thinking can help preserve not just the estate of his family but also the character.

An over-arching goal of estate planning is to help your heirs, not hurt them.  Many parents I plan with who have relatively significant assets try to follow Warren Buffet’s advice: “Leave the children enough so that they can do anything, but not so much that they can afford to do nothing.”

Endnote 1: What is the Great Wealth Transfer and When Does it Happen by Laura Rodini, June 20, 2023, The Street, https://www.thestreet.com/dictionary/g/great-wealth-transfer.

Endnote 2: Congressional Budget Office, https://www.cbo.gov/publication/58888.

Eddie Thompson, Ed. D., FCEP
Founder and CEO
Thompson & Associates

“If we merely aim for the industry standard, then our goal is mediocrity. Emulating the average nonprofit, we are destined to live with all the problems the average nonprofit faces. So, we suggest you aim to be exceptional in your approach to fund development.”  —Eddie Thompson

copyright 2023, R. Edward Thompson