Rise in inheritances lifting wealth management business, study shows

In what could be a major boon for the wealth management industry, a new report from Hearts & Wallets shows inheritances are no longer reserved for the wealthy.

The independent research firm said Wednesday that nearly two-thirds of U.S. households are now involved in intergenerational wealth transfer, with growth seen among both wealthy and lower-asset households, primarily as a result of the shift from defined-benefit pension plans to 401(k) plans.

The study said that of the 129.4 million total households in the U.S., 79 million (61%) have received, expect to receive or expect to leave an inheritance, up from 58 million (46%) in 2015. The biggest increase is in households that expect to leave an inheritance, at 49.4 million in 2022, up from 34.4 million in 2015, according to the survey.  

As it pertains to the wealth management industry, involvement with inheritances is highest in higher-asset groups, but more than half of households with under $100,000 expect to be involved in inheritances, up from 39% in 2015.  

The report is based on a survey of 5,993 U.S. households in the latest wave of the Hearts & Wallets Investor Quantitative Database.

“There is a growing appetite among households planning to leave an inheritance who want to talk about it with their families,” Laura Varas, CEO and founder of Hearts & Wallets, said in a statement. “This creates an opportunity for wealth management, asset managers and even retirement companies to open a dialogue with customers, especially those trying to balance a desire to leave an inheritance with the spending down of defined-contribution plans toward an unknowable ‘end-of-plan’ date.”

Nina Lloyd, president and CEO of Opus Financial Advisors, part of Advisor Group, points out that it's crucial to have a solid estate plan to provide a legacy to heirs and communicate those plans. That said, she believes it’s equally important to note that “increased longevity and rising health care costs for seniors can put a damper on what’s left behind.

“Most Americans expecting an inheritance should think of it as icing on the cake," Lloyd said. "You can’t count on an expected inheritance to be the sole source of funding for your retirement, your child’s education, or any of your own personal financial goals.”

The study showed that individuals who receive inheritances of $500,000 or more feel more experienced with investing, are heavier users of taxable brokerage and have more net equity in real estate than the national average. Meanwhile, recipients of inheritances of that size are twice as likely to have “demands on my time” that lead them to delegate.  

Generationally speaking, the survey showed that wealth transfer is happening at older ages than in the past, with about half of inheritances (52%) being received when an individual is 55 or older, up from 41% in 2015.  

“The reality is U.S. households are wealthier today than any other time in history. Show clients what their net worth is projected to be at different life expectancies," said Rob Pearl, wealth advisor at SageView Advisory Group. "It can be eye-opening for the client. Then the real estate planning can begin.”