Despite the Great Wealth Transfer, inheritance expectations in America not so rosy, study finds

The 2024 Planning & Progress Study by Northwestern Mutual provides a comprehensive look into the financial attitudes and behaviors of U.S. adults. As the nation anticipates the "Great Wealth Transfer," where an estimated $90 trillion will be passed down from older generations to younger ones, the study reveals critical insights into Americans' financial expectations and preparedness.

Despite a more optimistic outlook on the U.S. economy, feelings of financial insecurity have reached a record high. This article delves into the study's findings, examining the reasons behind Americans' hesitation to leave an inheritance, how individuals can prepare for the Great Wealth Transfer, the percentage of Americans expecting to receive an inheritance, and the impact of the Great Wealth Transfer on estate planning strategies.

Economic uncertainty

Economic uncertainty is a significant factor contributing to Americans' hesitation to leave an inheritance. Despite a drop in the number of people predicting a recession — from 67% in 2023 to 54% in 2024 — financial insecurity remains high. Inflation, although it had reduced in 2024 from its peak in 2022, continues to be a major concern. More than half of U.S. adults expect inflation to increase, and only 9% report that their household income is outpacing it. Persistent economic volatility makes it challenging for individuals to feel confident about their long-term financial stability.

Increasing cost of living

The rising cost of living, particularly in urban areas, further exacerbates financial insecurity. As expenses for housing, health care, and daily necessities continue to climb, many Americans find it difficult to save money. This financial strain limits their ability to set aside funds for future generations. The study highlights that one-third of adults do not feel financially secure, a significant increase from 27% last year.

Longer life expectancies

With advancements in health care, people are living longer, which means their savings need to last longer. This extended lifespan requires more resources to cover living and health care expenses, reducing the potential for leaving an inheritance. The study indicates that many individuals prioritize using their assets to cover living expenses and health care needs during retirement, rather than preserving wealth for future generations.

Changing attitudes toward wealth

Younger generations, such as millennials and Gen Z, exhibit changing attitudes toward wealth accumulation and distribution. Having witnessed economic volatility and financial crises, these generations tend to prioritize financial independence over reliance on inherited wealth. This shift in mindset is reflected in the study, which shows that younger generations are less likely to expect an inheritance compared to older generations.

Family dynamics

Modern family structures, including blended families and single-parent households, complicate inheritance plans. These changing dynamics may alter traditional inheritance patterns, leading to more complex considerations in estate planning. Additionally, some individuals may choose to prioritize their immediate family's financial needs over leaving a legacy for extended family members.

Preparing for the Great Wealth Transfer requires comprehensive financial planning and open communication. Here are some strategies individuals can adopt to ensure a smooth transfer of wealth:

• Early estate planning. Starting estate planning early is crucial. This involves creating a will, setting up trusts and designating beneficiaries for financial accounts and insurance policies. Early planning ensures that assets are distributed according to the individual's wishes and helps minimize potential tax liabilities.
• Open communication. Open and transparent communication with family members about inheritance plans is essential. Discussing financial goals, expectations, and the rationale behind decisions can help manage expectations and reduce potential conflicts. It also ensures that family members are aware of the plans and can prepare accordingly.
• Disversified investments. Maintaining a diversified investment portfolio can help mitigate risks and preserve wealth for future generations. Diversification involves spreading investments across different asset classes, such as stocks, bonds, real estate and other financial instruments, to reduce exposure to market volatility.
• Utilizing trusts and wills. Establishing trusts and wills provides clear instructions for asset distribution and protects beneficiaries. Trusts can offer tax advantages and help manage the distribution of assets over time, while wills ensure that the individual's wishes are legally documented.
• Financial education. Educating younger generations about financial literacy, investment strategies and the importance of long-term planning can empower them to make informed decisions and build a secure financial future. Encouraging open dialogues about money within families can also help bridge the gap between expectations and reality.

According to the Northwestern Mutual study, there is a significant disconnect between how much adult children expect to inherit and how much their aging parents plan on leaving them. While a third of millennials (32%) expect to receive an inheritance, just over one-quarter of Americans (26%) expect to leave an inheritance. This discrepancy highlights the importance of communication and realistic expectations when it comes to financial planning and inheritance.

The Great Wealth Transfer has profound implications for estate planning strategies. As baby boomers prepare to transfer an estimated $90 trillion to their heirs, the need for comprehensive and strategic estate planning becomes more critical. Here are some ways the Great Wealth Transfer affects estate planning:

• Emphasis on tax efficiency. Effective tax planning is essential to minimize tax liabilities and ensure that more wealth is preserved for future generations. Strategies such as setting up trusts, gifting assets during one's lifetime and utilizing tax-advantaged accounts can help reduce the tax burden on heirs.
• Incorporating philanthropy. Many individuals choose to incorporate philanthropic goals into their estate planning. This can involve setting up charitable trusts, making donations to causes they care about or establishing family foundations. Philanthropic planning can provide tax benefits and create a lasting legacy that reflects the individual's values.
• Addressing family dynamics. Estate planning must account for the complexities of modern family structures. This includes considering the needs of blended families, providing for dependents with special needs and addressing potential conflicts among heirs. Clear and detailed estate plans can help mitigate disputes and ensure that the individual's wishes are honored.
• Utilizing professionals. Engaging financial professionals and an experienced estate attorney can provide valuable guidance and expertise. These professionals can help individuals navigate the complexities of estate planning, ensure compliance with legal and regulatory requirements and develop strategies that align with their financial goals.
• Regular review and updates. Estate plans should be reviewed and updated regularly to reflect changes in personal circumstances, financial situations and tax laws. Regular updates ensure that the estate plan remains relevant and effective in achieving the individual's goals.

Inflation is considered the biggest obstacle to financial security by most Americans due to its multifaceted impact on purchasing power, savings, investments and the overall cost of living. The erosion of financial stability, coupled with economic uncertainty and rising health care costs, makes it challenging for individuals to feel secure about their financial futures. As inflation continues to be a significant concern, comprehensive financial planning and proactive measures are essential for mitigating its effects and ensuring long-term financial security. The insights from various studies, including those by the Federal Reserve and Northwestern Mutual, highlight the urgent need for individuals to adapt their financial strategies to navigate the complexities of an inflationary environment.

Given the pervasive impact of inflation, long-term financial planning becomes even more critical. Financial professionals recommend several strategies to mitigate the effects of inflation, including diversifying investments, maintaining an emergency fund and regularly reviewing and adjusting financial plans. Despite these recommendations, the reality is that many Americans are in a constant state of financial adjustment, reacting to rising costs rather than proactively planning for the future.

The Great Wealth Transfer presents both opportunities and challenges for American families. While the prospect of inheriting or passing on wealth is significant, the reality is that many individuals face economic uncertainties that impact their ability to leave a financial legacy. By understanding the factors influencing inheritance expectations and engaging in proactive estate planning, families can better prepare for the future and ensure that their financial goals are met. Open communication, strategic planning and professional guidance are key to navigating this complex process and achieving financial security for future generations.