Editor’s note: The Great Wealth Transfer is already underway. With over $100 trillion expected to change hands by 2050,1 our founding partner and chairman, Jeff Maurer, and our newest partner, Sean Brady, discuss best practices for intergenerational family discussions around wealth.
Jeff: My father served in the Army, and I arrived a few years after World War II ended, which puts me in the vanguard of the Baby Boomer generation. My wife and I both grew up in families that benefited from the stability and opportunity of post-war America. Our generation – through hard work, good fortune and powerful economic tailwinds – achieved financial success that greatly exceeded that of our parents.
The fortunate among us have benefited enormously, as ours is among the richest generations in history. Baby Boomers represent about 20% of the population but now control over half the nation’s personal wealth.2 But I worry about the cost of aging, about the responsible transfer of wealth, about our society and about the future of the American Dream. And I know that many of our clients do too.
Sean: My generation is the most anxious ever, apparently, which makes sense. During my first internship in the summer of 2007, I witnessed the buildup to the financial crisis and the chaos that ensued. I then graduated college near the market bottom, too young to benefit from the subsequent asset price boom. Add in a global pandemic, unaffordable housing costs, soaring inflation and AI disrupting everything – who can blame us?
Jeff: Every generation does have its challenges. Let’s talk about how our client families can bridge this generational divide, to help each other through the stages of life – from parents and grandparents guiding the very young, to adult children supporting their aging parents. There are no hard-and-fast rules, just as there are no typical Baby Boomers or Millennials, but there are some best practices.
When to Talk About Wealth
Sean: My own children are very young, but I can already see that they are developing an awareness of the outside world and their place in it. Families with significant assets and corresponding lifestyles clearly need to start the discussion early. If we want the next generation to handle wealth well, they need to be fluent in money long before they inherit it.
It’s a difficult subject to raise, as many parents are concerned that their children will develop a sense of entitlement if they are made aware of the extent of their good fortune. But providing information to children incrementally over time, at key milestones, can thread the needle between giving them enough information to make sound decisions and supporting their ambition and work ethic.
In the earliest years, it starts with helping them understand basic concepts of money – what money is and why we can’t buy whatever we want whenever we want. As they get older, we can introduce concepts such as taxes, compound interest and the importance of asset ownership.
Jeff: If children aren’t guided early by their parents and, I like to think, grandparents, then others – their friends and their community – will influence them. My grandchildren are far more sophisticated and exposed to outside influences than my children were, particularly through social media. The contrast to their parents’ childhood, let alone my own, is striking. If values are not instilled early, others will step in to shape them.
That makes the role of parents and grandparents more important than ever. Children may experience a level of affluence – whether through travel, lifestyle, or even exposure to private aviation – that can distort perspective if not grounded properly. They need to understand not only how fortunate they are but also the responsibility that comes with that privilege. They also need to understand that their family’s financial success may not be able to be replicated in their generation.
Sean: That conversation can evolve with maturity to include an appreciation of what money can do. For example, around college age, when they are deciding on a career path, discussions can focus on interests and passions – not on simply maximizing income (unless that is what truly motivates them). The next generation should understand that there may be enough support for education, starting a venture and meeting basic needs – but not enough to eliminate effort.
Jeff: That’s right. It can be very satisfying to encourage careers in medicine, teaching, or the arts. There’s a terrific quote by John Adams on this: “I must study politics and war, that our sons may have liberty to study mathematics and philosophy… in order to give their children a right to study painting, poetry, music, architecture…” Although, as Abigail Adams reminded him, he should have “remembered the ladies.”
Sean: We seem to have circled back to politics and war, but I take your point. Many of our clients feel that it’s a joy to help their children pursue rich but not necessarily lucrative careers. That brings us to the next question: When do families “open the books” and fully share the asset base and overarching financial plan?
Jeff: This is a highly personal decision and depends on family dynamics. Most clients have this conversation once their children are well established and the older generation is comfortable with the path they are on. The benchmark could be a satisfying career, a strong family life, or simply a stable and happy existence.
It is generally important that grandparents allow parents to take the lead in communicating with grandchildren. In many cases, children are already beneficiaries of trusts and begin receiving financial support at an early stage, making thoughtful conversations essential.
Sean: It is vital to have a conversation about money before getting married. I find that younger generations are quite comfortable with this topic and willing to sign prenuptial agreements. Perhaps the high divorce rate over the last several decades has affected them personally – whether in their own families or among close connections. They understand the importance of protecting themselves and avoiding potentially costly and draining legal disputes.
Jeff: I knew a couple years ago who didn’t tell their daughter about her expected inheritance until her wedding, when they suggested that she and her fiancé sign a prenuptial agreement. That caused considerable difficulties before the ceremony – issues that could have been avoided with earlier and better communication.
On a brighter note, this stage of life may also be an appropriate time for parents to consider more substantial gifts, such as helping with a house purchase or funding educational trusts for grandchildren.
When to Transfer Wealth
Sean: Maybe it reflects the relative hardships my generation has experienced, but I am a strong proponent of giving during life rather than waiting until death to transfer wealth. Assuming there are more than sufficient assets to support lifestyle – even in less favorable market conditions – providing capital when it is most needed can be extremely meaningful.
To my mind, the earlier wealth can be transferred, the better.
Trusts are an excellent way to take advantage of the tax benefits of gifting without giving control of the assets to the next generation – allowing assets to grow and compound over time in a tax-efficient transfer structure.
A generation-skipping transfer (GST) exempt trust is an extremely powerful vehicle. For example, a married couple could fund GST-exempt trusts for children and grandchildren with the full combined gift and GST tax exemption of $30 million today. Assuming assets double approximately every 10 years at a 7% return, the tax savings can be substantial, particularly as assets compound over multiple generations.
Jeff: Agreed, but the starting point for anyone of my generation considering that approach should be a rigorous financial analysis to ensure that their own lifestyle is secure. Protecting our future selves and our spouses comes first. Ideally, children and grandchildren understand that – and also support us in other ways as we age. But for those who are financially secure, intelligent gifting is a must to avoid paying unnecessary transfer taxes.
Sean: I believe Millennials want to be engaged, trusted, and relied on – and to model those values for our own children. The more families communicate, the better.
Jeff Maurer is the Chairman of Evercore Wealth Management and Evercore Trust Company. He can be contacted at [email protected]. Sean Brady is a Partner and Wealth & Fiduciary Advisor. He can be contacted at [email protected].
Additional resources
Ready to learn more? Here are some recent articles by Jeff Maurer and other Evercore Wealth Management partners on discussing and transferring family wealth.
The Great Wealth Transfer and Legacy Planning: https://evercorewealthandtrust.com/the-great-wealth-transfer-best-practices/
Building a Strong Family Financial Planning Network: https://evercorewealthandtrust.com/family-financial-planning-framework/
Intergenerational Wealth Transfer Planning: https://evercorewealthandtrust.com/intergenerational-wealth-transfer-planning/
Engaging the Next Generation in Wealth Management: https://evercorewealthandtrust.com/next-generation-wealth/
