Baby Boomer Wealth Transfer

February 23, 2004

Today’s planners sit on the leading edge of what is expected to be the greatest transfer of wealth in the history of America. The economic boom of the 1990s created an unprecedented amount of personal wealth in America—currently estimated at more than $33 trillion. At the same time, today’s retirees constitute one of the wealthiest segments of the U.S. population with more personal wealth than any previous generation.

Economists believe that bequests of this wealth will significantly boost the resources of the 76 million Baby Boomers. That means by the year 2052, an estimated $40.6 trillion will change hands as Baby Boomers and their parents pass on their accumulated assets to their heirs.

Financial planners have a real opportunity with this unprecedented transfer of wealth if they start now to shift their thinking, according to executives at Lincoln Financial Group.

“Traditionally, financial planners have focused most of their efforts on helping clients accumulate wealth,” said Wes Thompson, president and CEO for Lincoln Financial Distributors, the wholesaling distribution organization of Lincoln Financial Group.

“While that will always be an important role, planners who only think about wealth accumulation will miss their piece of this $40 trillion pie today and in the future.”

“Affluent Boomers are on the cusp of shifting their emphasis from wealth accumulation to preservation. And that moment is precisely when savvy financial planners have a golden opportunity,” added John Gotta, president and CEO for The Lincoln National Life Insurance Co. (Lincoln Life).

“Every seven seconds another Baby Boomer turns 50, bringing them that much closer to the time when they will be thinking about preserving their assets while they are alive and transferring their wealth to their heirs when they die,” Gotta said. “We know that many Boomers have been quite successful in accumulating wealth. But they have not, until recently, been concerned with preserving and transferring that wealth to their heirs. This presents an opportunity for planners.”

Wealth preservation and transfer ranked among the top concerns of affluent Americans, according to a Lincoln Financial Group survey by Wirthlin Worldwide. In the survey, “Financial Planning Among America’s Wealthy,” affluent consumers said that two of their most important financial concerns were preserving their wealth for their spouse and heirs (listed as a very important goal by 70 percent), and reducing their estate tax liability (cited as a very important concern by 63 percent of those surveyed).

There is a difference in thinking when planners approach clients about wealth transfer versus wealth accumulation. Planners working with clients interested in accumulation create plans that build up assets as much as possible for retirement income. When their thinking focuses on wealth transfer, the question becomes “how much of current assets will be retained at death?”

Producer tips
What should producers do to “think wealth transfer” and take advantage of this emerging demographic? Gary Parker, chief product officer for Lincoln Life, has prepared these tips:

Understand the tax laws involved in wealth transfer. “Planners need to educate themselves on matters such as gift taxes, not just estate,” he said.

Set up relationships with third-party advisors. Attorneys, trust officers and CPAs are heavily involved in the issues surrounding wealth transfer. “Consider these people as more than sources for leads. Focus on them as part of your ‘knowledge team’ as you refocus clients on the need to plan for wealth transfer,” he suggested.

Take another look at current clients. “Your network of clients may be the best place to gain access to those in need of wealth transfer planning,” Parker said. “Often, broaching the subject of wealth transfer may come through a client relationship with a Boomer client whose parents are aging and shifting their focus to wealth transfer. So, while a Boomer client may still be in the wealth accumulation stage, he or she may have an affluent parent who needs assistance with wealth transfer issues.”

Look at the whole picture. There is more to wealth than stocks, bonds, mutual funds, annuities, insurance and other financial products. “We know that more than half of the nation’s personal wealth is held in non-financial assets, such as houses, land, farms and personally-owned businesses,” Parker said. “Based on past experience, the value of this wealth will grow over the next half century, and at the same time most of it will change hands. The majority of this huge transfer of wealth will go to spouses, children and charitable causes. A significant portion also will go to state and local estate taxes.”

Life insurance can play a key role in developing a wealth transfer strategy for affluent consumers.

“Life insurance is an effective tool for protecting a client’s full estate upon death,” Parker said. “Second-to-die life insurance is a particularly powerful tool to help meet wealth transfer needs. There is no other financial vehicle that can replace the estate tax liability in a person’s assets quite as well,” he continued.

When a person dies with an estate over the current estate tax exemption, taxes can be as high as 55 percent for a larger estate. Surviving spouses get relief from the estate tax under the marital exemption, but family members of the second spouse to die do not get this exemption. At their death, their heirs are responsible for the estate tax. With second-to-die life insurance coverage, the estate can still go to the heirs virtually intact.

Lincoln, for example, offers second-to-die versions of universal life, interest sensitive whole life and variable universal life products.
“Producers tell us that because these policies are typically for large face amounts and large premiums, they are a particularly valuable part of their business,” Parker said. “In addition, these policies are usually written on clients who are older and who are often impaired risks, requiring larger premiums.”

Given the enormous amounts of wealth that will change hands within the next decade, financial planners will need to stay current on these issues and other issues surrounding this enormous transfer of wealth.

“Learning as much as possible about these Boomers and their command of over $40 trillion can have serious bottom-line implications for today’s financial planners,” Thompson said. “Staying on top of these issues is good for clients and it certainly promises to be good for the planners.”

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