Where There’s a Will, There’s a Way

Many older consumers are increasingly reluctant to transfer assets lest they run out of money.

August 3, 2015

Do You Think You’re in the Will? Well, Guess Again,” says a recent article. 

Wealth managers indicate that today’s retirees “are far more focused on meeting their own living expenses than leaving a financial legacy behind,” and many that do have assets at death often leave gifts to charities or name grandchildren as heirs.

Boomers have supported adult kids for a longer duration than prior generations: Funding college educations, bailing kids out of debt, and making other financial contributions during their lifetime—a trend that further fuels boomer desires to use savings for their own interests rather than leaving an inheritance.

Many older consumers also “are increasingly reluctant to transfer assets…lest they need that money to make ends meet.”

Still others think an inheritance shelters younger generations from financial self-sufficiency as they depend on wealth transfer.

“Indeed, wealth planning today looks very different than it did 20 years ago,” notes the article.

This week: Trends in inheritances, wealth transfer, and considerations for consumers on either the giving or receiving end of a financial stream.

‘The finest inheritance you can give a child is to allow it to make its own way, completely on its own feet.’  --Isadora Duncan, dancer

Analysis of intergenerational cash transfers during the lifetime of the donor is less available than data available on such transfers at the time of death. A new study by the Employee Benefit Research Institute fills some of that gap.

It reveals the greater tendency is for older households—with at least one family member age 50 or older--to transfer money to younger generations than the other way around. Only 4% to 5% of older households receive cash from younger family members while 38% to 45% of such households transfer money to younger family members.

“The average annual transfer amounts are large enough to be considered as a major spending item in a household budget,” the study says. 

From 2008 to 2010, older households with one member age 50 to 64 transferred, on average, $8,350. Younger family members gave in much smaller amounts. Those 85 or older received the greatest amount transferred to them, on average $359.

The trend of a “living inheritance” could jeopardize retirement for older consumers, according to a recent report by HSBC that appeared in ThinkAdvisor

“Living inheritances add another dimension to the already complex financial pressures faced by retirees. A desire to support loved ones…is understandable, but for many people this comes at a cost both to their retirement dreams and to their ability to leave a legacy,” says Andrew Ireland of HSBC Bank USA. 

Forty-three percent of retirees make regular financial support to someone; of those who still work, 62% give regular financial support to another. 

Nearly one-fourth of workers indicate they prefer to spend or give away all assets during their lifetime rather than to leave an inheritance.

Of retirees, 59% have abandoned at least one retirement goal; one-fourth are worried about inability to financially support those they care about; and 23% fear they will need support themselves.

And, “some investors are relying too heavily on an inheritance…Twenty-nine percent of retirees who have received, or think they will receive, an inheritance believe it will at least partially fund their retirement.” 

Nearly half of workers share this sentiment.

‘Say not you know another entirely till you have divided an inheritance with him.’ –Johann Kaspar Lavater, poet

Still, there will be some lucky beneficiaries.

Wondering “What to Do With a Big Fat Inheritance”?  CNN Money indicates consumers toting windfalls have various options. Some advisers recommend “dollar-cost averaging,” or investing in small increments to accept less financial risk. 

Others suggest “to settle on a mix of stocks and bonds that jibes with your financial goals, and then invest the whole sum based on that mix.”

No matter how consumers choose to invest, they must remember that the longer they delay choosing stocks and bonds, “the longer before your money will be invested the way it should be.”

Meanwhile, “Wall Street Has Its Eyes on Millennials’ $30 Trillion Inheritance,” says Bloomberg. Millennials “stand to inherit substantial assets,” estimated at $30 trillion in North America alone.

Millennials find financial advice and information in many ways: Social media, online commentaries, and personal finance seminars. Also, they are very educated. Thirty-four percent have at least a bachelor’s degree. And, “they look to multiple sources for financial advice,” including friends (over 40%), self (40%), bankers (nearly 20%), broker/company (just over 10%), and independent advisers (around 5%).

Therefore, “they might not roll all of that dough into perfectly sensible investments…Instead, they could very well just ‘share‘ it. If that’s the case, they’re bound to start hearing from a bunch of moochers who are even worse than Wall Street: Gen Xers,” the article says.

There are “5 Things You Need to Know” about inheritance taxes, The Motley Fool says. There is no federal inheritance tax, only a state tax. Although taxes are levied against an estate, the inheritance tax is assessed against beneficiaries. Five tax considerations include:

  1. Recently, only six states levied an inheritance tax: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.   
  2. Tax amounts will probably depend on asset values and the relationship between the recipient and the giver, ranging from 1% to 20%. Usually spouses are exempt.
  3. Not all heirs will be taxed, “it typically applies to inheritances above a certain threshold.”
  4. Taxes are due nine to 18 months after the giver dies.
  5. Inherited assets subject to capital gains tax will have taxes due upon sale.

‘We are all gifted.  That is our inheritance.’  --Ethel Waters, vocalist

Finally, “Why Do So Many Parents Lack Life Insurance and Wills?” asks

Thirty-seven percent of parents with kids under 18 have no life insurance. And of those who do, half have less than $100,000 in coverage. An insurance analyst at Bankrate notes this is “rather unsettling.” 

Just over half of parents have a will; of those, 60% have not made any changes in the last five years. 

Leaving a legacy is important for some, less so for others. Abilities and preferences to manage wealth transfers may change with age, income, expenditures, and consumer attitude.

What is the will of your members?

 LORA BRAY is an information research analyst for CUNA’s economics and statistics department. Follow her on Twitter via @Bray_Lora and visit the CUNA blogThe Research Roundup: Economic Perspectives.