Sunday 27 November 2022

Greatest wealth transfer incoming | Why talking about it might help

Even though the markets and economy has been horrible with much more bad news coming, I recently came across this interesting article which was about how the greatest wealth transfer is about to be happening where baby boomers are set to pass to their children more than $68 trillion in assets. This is really interesting as inheritance will prove to be a huge thing as baby boomers pass on and the wealth is passed down to the young. 

The article talks about why the wealth transfer might not be as much as you think and why it is important to talk about it. Certain parts of my article might sound superficial but I do think it is good to be talking about finances and how you will be leaving your wealth to your children.

Summary of article

The baby boomers, born between 1946 and 1964 have accumulated substantial wealth either through property or some even through stocks and maybe even pure savings. Properties and other assets were relatively more affordable when the baby boomers were young as compared to now and with the assets being passed down, the wealth transfer will be substantial.

Preparing for the wealth transfer

Although you might be thinking that the wealth transfer is positive and definitely beneficial to the children, I am sure majority would rather their parents to live a healthy and long life than have a huge inheritance but their parents pass on early. This is true and people do live longer nowadays due to better healthcare and more conscious eating habits and lifestyle so baby boomers will still require a certain amount of wealth over a long period of time to sustain themselves. Baby Boomers hence will have to ensure that their wealth is sufficient and that it can sustain them through old age.

Discussion on wealth

A few articles recently talk about having a conversation with your parents about their views of money and how they are managing or will manage it in case of anything that happens. I believe the government is also trying to make sure that family members are able to make decisions if their loved ones are ill and are unable to do so hence waiving the LPA application fees and allowing it to be accessible to many although the decisions might not just be financially.

For the wealthy, it might be difficult saying out how much is left and usually most of it are done by the professionals, eg they engage investment trust or set up family offices to manage their wealth or have lawyers to make sure their will is in place.

It is a shock to some if they were to suddenly receive a large amount of inheritance especially so if there was no prior talk and a low financial literacy can result in the money being depleted. So getting to have a conversation to prepare the individuals can allow them to know what is coming although it can be a danger at times if you were to reveal how much you are worth and what they will be getting when you leave the world.

Charitable Intent

I am sure many have heard of the rich saying that they will not be passing down their wealth to their children and instead it will be donated. With a sizeable amount of wealth accumulated, some will choose to donate their wealth and this is equally a huge decision. The main point of the article is that parents should try to communicate on the sum although I would say it depends on the relationship and also how huge the amount is as every family has very different circumstances and most of us do not even know when we will leave the Earth.

Managing a large sum of money

I would say that I do not anticipate any large sum of money as we have been telling our mum to spend her money and we know she wasn’t able to save up much that she would have an inheritance for us. However, many baby boomers do have at least 1 property and this might be passed down depending on where you are located eg. Singapore HDBs are on a 99-years lease so it might have to be returned and will not be passed down as an asset whereas some freehold or overseas property would be for life as long as you have paid up for it.

It is important to learn to manage any sum of money that comes in as it is after all the fruits of labour or careful planning. With this asset transfer set to happen, many financial companies would be placing lots of emphasis on focusing on how to assist the high net worth individuals in preserving or even to grow their wealth. We can see many family offices coming into Singapore recently and there have been an influx. I will be sharing more on my next post on the number of HNWI (high net worth individuals making Singapore as their base).

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