The Inheritance Trap: 3 Reasons You Shouldn't Count on Your Boomer Parents' Money.

Many headlines claim that a "Great Wealth Transfer" is now underway.  Despite only making up 20% of the country's population, baby boomers own more than half of household wealth-approximately $80 trillion according to the Federal Reserve. That wealth makes Boomers the richest generation in American history.

 Yes, this generation worked hard, but they were also very lucky. According to Allianz, baby Boomers gained their wealth from “a unique historical situation-strong economic growth, an affordable housing market and booming equity markets.” These circumstances have allowed Boomers to amass sizable portfolios of real estate and investments. The generations that follow are not and will not be as fortunate.

 If you are a child of a Boomer, Generation X (born 1965-80) or a Millennial, (born 1981-96), there are several reasons that you shouldn’t start making plans for your inheritance.

While that $80 trillion figure is staggering, it’s a top-heavy illusion: that wealth is held by only 32% of Boomers. For the remaining 68%, the 'Great Wealth Transfer' simply isn't coming; many are actually at risk of outliving their own savings. 15% have less than $500,000 in assets and the remaining 53% have less than $250,000.

Even if you are one of the fortunate children born to the wealthy 32% of Boomers, your potential inheritance faces other hurdles as well.

 Furthermore, many Boomers have adopted “the die with zero” mentality. These individuals are intent on spending all their money and leaving nothing to their heirs. Over half of Baby Boomers surveyed stated that they plan on enjoying what they have earned and do not expect to leave anything to their children. Only 22% of Boomers are expecting to leave wealth to their children.

 An even larger hurdle is the potential health care cost that Boomers or any elderly person may face during their retirement. The average life expectancy in our country is now over 83 years of age. Greater life expectancies mean greater health care costs A single woman can expect to spend $165,000 over her retirement in health care costs. A married couple can expect to spend between $315,000 to $365,000.

 I have two terrifying examples of expensive healthcare. One, a client’s parents were set to leave their only daughter $10 million. At the end of their lives, the parents stayed in their home and hired full-time care. By the time her parents died, the estate value was less than $3 million. Additionally, I currently have a couple as clients who are almost ninety. It’s not unusual for them to spend over $50,000 a year in healthcare insurance and deductibles.  Their investment portfolio is over $2 million. It’s easy to see how a large part of their assets will need to be liquidated over their remaining years.

 Rising healthcare costs are one of the main reasons that two-thirds of Boomers will outlive their savings or lose their standard of living during retirement.

 

It's not just direct medical costs- doctors hospitals and prescriptions-that become an eventuality. There is a 69% probability that a retiree will need long term care- home care, nursing, or assisted living- at some point. There is at least a 50% probability that a retiree will spend up to 90 days in long term care. These facilities are astronomically expensive. The median monthly cost for assisted and in-home care are $5300 and $6000 respectively. With health care inflation outpacing CPI by two to three times, these costs will continue to rise.

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Divorce and remarriage have increased the complexity of inheritance. For example, in the 1970’s and 1980’s, almost 70% of Boomers married. 46% of these marriages ended in divorce.

On average, two-thirds of divorcees will remarry. Many will choose to cohabitate instead. Both actions can result in havoc for children from a first marriage.

 If an estate plan or a will do not exist, most states favor the surviving spouse. It's not unusual for the surviving spouse and their family to inherit most of the assets. I have direct experience.

My father was a university chancellor, and his second wife was a tenured professor. They owned several nice homes in Northern California, an international real estate portfolio and significant savings. When he died, everything passed to his second wife and her biological daughter. My sister and I received nothing.

 For some children of Boomer parents, this article’s statistics will be disturbing.  You may desire certainty regarding the plans of your parents’ finances. If you have a good relationship with your parents, consider asking them directly. Many would welcome the conversation and might even consider gifting part of your inheritance during their lifetime. 76% of those leaving Inheritances are open to the idea of transferring some of their wealth before death.

 If this conversation doesn’t go well, and you the Millennial parent of a Gen Z child, might consider asking your child to float you a loan. Many Gen Z kids are terrified by how little their parents have saved for retirement. It is estimated that as many as 60% of Gen Z have started IRA’s and other savings plans. It’s might sound surprising to you , but some Gen Z’s have been known to start saving as early as nineteen years of age. It’s a good thing that many of them have learned from their parents’ mistakes.

Link: Michelle Connell and Portia Capital Management