Women and the Great Wealth Transfer

The great wealth transfer is in motion, and women may emerge as the biggest beneficiaries. Women are poised to inherit in the forthcoming decades a sizable share from their spouses and aging parents. Despite the persistent gender average worldwide pay gap (women still only earn approximately 80% of what their male counterparts do), women are going to accumulate wealth and they need assistance in preparing for that wealth transfer. Here are first the countries with the largest wealth transfer in the coming 30 years. How much of it is going to be lost to taxes and how inheriting women are dealing with what is expected to fall in their hands?

High Net Worth Individuals

According to the Wealth-X High Net Worth Handbook 2019, published in January 2019, the number of individuals with net assets of $1m – <$30m totaled 22.4 million in 2018. These are defined as High Net Worth (HNW) individuals. Their combined net is worth $61.3trn.

New York is home to the most HNW Individuals – while New York City saw its HNW population shrink by 0.6% in 2018, with just below a million HNW individuals, the Big Apple still retains with a HNW population that is 65% larger than the second city in the top 10, Tokyo.  In addition, six of the top 10 cities are in the US.

The Asia-Pacific region is projected to experience the strongest growth in the number of HNW individuals and combined wealth, with the region’s HNW population projected to increase at a compound annual growth rate of 7.6% over the next five years.

Ultra-High Net Worth Individuals

On the ultra-upper stratum, individuals with assets of at least US$30 million are defined as Ultra High Net Worth (UHNW). Half of the world’s UHNW are expected to pass on their wealth in the coming three decades. Over the next 10 years alone, US$4.1 trillion is anticipated to change hands.

Comparing HNW and UHNW populations shows an even larger proportion of self-made HNW individuals – almost nine of every ten.

The HNW population exhibits a more equitable gender split than the UHNW population but nonetheless remains heavily male dominated.

Ultra High Net Worth Wealth Transfer

At least US$16 trillion of global UHNW wealth will be transferred to spouses and their children over the next 30 years — marking the largest wealth transfer in history.

The US is the country with the largest amount of UHNW wealth. In absolute dollar value, over US$6 trillion is expected to be transferred in the next 30 years. This is equal to 38 percent of the global total of US$16 trillion.

Rounding out the rest of the top five "hot spot” countries for wealth transfers in absolute dollar value are Germany (US$1.645 trillion), Japan (US$1.645 trillion), the United Kingdom (US$830 billion) and Brazil (US$560 billion).

The five countries with the largest proportion of UHNW wealth being transferred over the next 30 years are Malaysia (US$85 billion), Taiwan (US$170 billion), France (US$415 billion), Japan (US$1.645 trillion) and Brazil (US$560 billion), according to Wealth-X forecasting. UHNW individuals in Malaysia, Taiwan and Japan are all expected to hand over at least seventy percent of their wealth to the next generation; this is partly because some of the wealthiest billionaires in these Asian nations are already in their 70s or 80s, which has a disproportionate impact on each country as a whole.

Across regions, North America is predicted to be the source of the largest transfer of UHNW wealth over the coming three decades, in both absolute (US$6.35 trillion) and relative terms (62 percent of total wealth). Africa and Asia are set to have the lowest proportion of their current UHNW wealth change hands in the same 30-year period, at 43 percent. Europe will have a smaller wealth transfer than North America in both absolute and relative terms, because Europe already has a higher proportion of inherited wealth; 45 percent of Europe’s UHNW individuals have fully or partially inherited their wealth, compared to only 25 percent in North America.

In the following 20 years, Asia’s UHNW population and wealth are anticipated to grow to become the largest in the world. Whilst Wealth-X expects Asia to be at the center of wealth creation in the coming decades, it will still take a long time for the impact of this to affect wealth transfers to the next generation in the region.

In the Middle East, including Turkey, over the next 10 years alone, US$130 billion is anticipated to change hands, over the next 20 years another US$220 bn, and over the next 30 years some US$490 bn is anticipated to change hands.

Problems of the Rich

Without prior planning, UHNW individuals could lose up to half of their fortunes through inheritance taxes. All of the five "hot spot” countries have an inheritance tax rate of at least 40 percent, with the exception of Brazil, where the maximum rate is 8 percent. The relatively high tax rates underscore the importance of early planning to ensure the successful transmission of assets and values from the benefactor to his or her beneficiaries.

Since most of the beneficiaries are going to be women – spouses or daughters, a recent study by RBC Wealth Management looks at how high-net-worth women — future key decision makers in managing family finances — approach building and preserving wealth. It looks as they will be needing assistance in preserving and further transferring wealth.

The study comprised 1,752 women and 1,321 men across the U.S., Canada and the U.K. worth $4.4 million each on average. Even though it reflects native English-speaking countries, I would assume that UHNW individuals have traveled heavily and are influenced by the English-speaking cultures. Thus, the following tendencies probably apply to non-native UHNW English individuals too.

Women as beneficiaries

Fifty-seven percent of women in the survey had received a transfer of wealth, and most of the others expected one in the future.

The inheritance experience, RBC found, was "often lonely and confusing” because inheritors, regardless of gender, were "generally unprepared, uninformed and unsupported.”

Earlier research showed that many rich families transfer wealth absent context, conversation, guidance or accountability. A big majority of inheritors in the RBC poll who reported having advance conversations with their benefactors knew in advance the monetary value of the assets they would receive. However, they had little understanding of what the benefactors wanted them to do with the assets or of the structures used to transfer assets or the advisors who would facilitate the process.

Women in the survey were less likely than men to receive information about their inheritance. Thirty six percent of female inheritors said they had received no professional or family guidance at all. Moreover, just 29% of women had benefactor guidance about how to use the assets, compared with 37% of men. Yet, 19% of women who expected to receive an inheritance said this was an important part of their preparation, and 21% said some investment education would be the most valuable type of guidance.

Other research has found that in American families, talking about money matters is often difficult. Upon receiving their inheritance, women had to figure out how to incorporate the assets into their overall wealth and retirement planning.

Fifty-seven percent of women said they intended to pass on their wealth only upon death or illness. The reason: For 27% of these, it was a sense of not having enough to give away gradually while living, and 31% said they need the money to fund their lifestyle.

The report found that worries about having enough money for retirement was holding back some women from initiating wealth transfer plans.

Twenty-two percent of those surveyed said they had a full wealth transfer plan in place, compared with 30% of men, and more than a third of women said they had yet to do any preparation.

A study by Boston College researchers found that inheritances do not improve retirement security much.

Preparing the Next Generation

Many female inheritors are drawing on their own experiences in constructing a strategy for the next generation, according to RBC.

Ninety-two percent of respondents reported that they had begun to educate their children on wealth matters or intended to do so. They said children should start to learn how to manage family wealth at these ages: Budgeting at age 17, Investing at age 20 and wealth transfer at 24.

RBC said its research showed that women who are knowledgeable about wealth and focused on their family’s long-term financial health are both empowered and empowering. The study found that not all high-net-worth parents were convinced that a proactive approach to educating their children was working. Only 44% expressed confidence in their heirs’ abilities to grow their wealth. However, the next generation had a different view. Both female and male millennials appeared to be growing in confidence and financial sophistication, the study found.

Younger women, in particular, were benefiting from their mothers’ efforts, the research showed, with 51% exhibiting confidence in their wealth knowledge.

In summary, if you are a female who is expecting to inherit a large inheritance, don’t wait. Go look for someone to educate you in finances if your future benefactor is not doing so.

Wealth Transfer