Inheritance Denied For Some Baby Boomers' Kids

Sep 14, 2011
Originally published on September 15, 2011 9:34 am
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We've been talking about how much money the government has or should have to spend. Now, we're going to switch gears to finance on a more personal level.

It's almost an article of faith that parents are going to try to sacrifice today so they can leave something for their children to have after they are gone, but a new study by the investment firm, US Trust, finds that a majority of millionaire baby boomers, 51 percent, said they see no need to leave their children money when they die.

Wanted to know more about this, so we've called upon Keith Banks. He's president of US Trust. That's the private banking firm associated with Bank of America. They sponsored the survey.

We'll also get additional perspective from our regular contributor on matters of personal finance and the economy, our money coach, Alvin Hall.

Welcome to you both. Thanks for joining us.

KEITH BANKS: Good to be here. Thank you.

ALVIN HALL: Thank you.

MARTIN: Mr. Banks, just to set the table, there are approximately 5.6 million households in the US with more than $1 million in investible assets, but you focused on the high net worth or what you call ultra high net worth, people with in excess of $3 million of investible assets or more. So just to let people know sort of the populous we're talking about here. The average age of the people you surveyed was 61. Fifty-eight percent are men, 42 percent women.

So what do you attribute this to? Why do you think that is? This is just different from what we generally think of as being the motivation of parents to accumulate wealth and certainly to hold onto it.

BANKS: You know, one of the things that we kind of discern from this is that there is a unique mindset among the first generation wealthy baby boomers. And, you know, they're kind of rewriting, I think, well established views on both wealth transfer and retirement.

And I think it's a function, number one, of the fact that three-quarters of these respondents generated the wealth themselves. It was their hard work, their blood, sweat and tears, so to speak.

Fifty percent would tell you that accumulating that wealth came with a price. Time away from family, sometimes physical ailments, so it did not come easy and it took a lot of time and a lot of effort by these individuals to accumulate that wealth.

MARTIN: Alvin, what do you think of this? What do you make of this finding?

HALL: It doesn't surprise me because I think the generation of baby boomers are very much focused on their own happiness and their own fulfillment, especially in retirement. They want to see a future that's still full of possibility, still full of growth.

I also believe that they view their primary role with their children is to give them a good education, to give them a good emotional grounding so that they can build their own wealth and not rely on the parents.

MARTIN: You know, Keith, one of the questions I had is that - is it in part also that they felt it was expensive to raise their children now, that they had already invested in their children? Sending them to private schools, for example, or giving them, you know, advantages that perhaps they did not have, so they felt that they had already set their kids up for the future.

BANKS: I think they feel like they're doing the right things to prepare their children for the future, but you've got to remember, too, this generation is baby boomer generation. You know, it's the forever young generation. They are not acknowledging readily that they're aging, number one.

Number two, if they retire at 55 or 60, they're thinking they've got 20 or 25 years or more of life ahead of them, so part of what I think we're seeing here is not only have they worked hard to generate this wealth, but they're saying, I've got to be planning for 20 or 25 more years of my own life. That's going to require funding. That's going to require assets.

And they don't think of retirement in the traditional way, you know, where the day comes, the bell rings, you go sit on the beach and wait for whatever you wait for. These are people who are going to start second careers. They're going to travel. They very much view themselves as, this is a second beginning, not an ending.

So when you think that way and you're planning accordingly, the first thing you're not thinking about is, OK, so how do I now give this money I accumulated to my children? I think they'll get to that point, but they're just not at that point now.

MARTIN: Alvin, what do you think? Because you could look at this in one or two ways. On the one hand, you could say, you know what? These people are pretty selfish. On the other hand, you might say, you know what? These people are pretty smart because they realize that they are going to need assets to live on. They're going to probably live longer than their parents. Their expectations for their lives are higher than their parents. So in fact, you could argue maybe that they think that they are sparing their children the burden of having to take care of them later on.

HALL: The traditional wisdom is that the best gift a parent can give a child is the parent's own financial security, so the child is free to go out and pursue their lives. And I think this baby boomer generation really believes that, but in a recent survey that I participated in and used the information from in the United Kingdom - we found out that a lot of baby boomer generation people are helping their children along as they go through life. So they don't wait until the end.

For example, if a child loses their job, they will give the child money to help them rebuild or to get them through that difficult time. If the child goes through a divorce and it means restarting, they will help that child get back on the property ladder or to pay the school fees. And they're very good about providing money for their children's children for education and other purposes.

So while they may not be waiting back all the way until the end to give them money, they are helping along the way.

MARTIN: If you're just joining us, we're speaking with Keith Banks. He's president of US Trust. That's the investment firm that's associated with Bank of America. And, of course, our regular personal finance contributor, Alvin Hall.

We're talking about a new study by US Trust that says that well off, as they describe it, high net worth and ultra high net worth individuals are not as concerned about leaving money to their children as one might expect.

One of the other big stories around wealth that emerged this year is a survey by the Pew Charitable Trust that recently reported an increase in the wealth gap, the racial wealth gap. It showed that white families typically have nearly 20 times the wealth of black households and 18 times the wealth of Hispanic households.

And this lopsided ratios are the largest since the government began publishing this data a quarter of a century ago and twice the size of the ratios that prevailed between these three groups for the decades prior to the recession. So, clearly, African American and Latino families have taken a huge hit over the course of this recession.

One of the questions I had is this notion that these families have, that they don't feel that it's a priority to pass money on now - could that narrow the wealth gap in some way?

HALL: I don't think that the baby boomers' attitude will affect the wealth gap. I think the wealth gap has been something that has become sort of built into the American psychology. I'll explain why.

I think that, by sending your kids to certain schools, by exposing them to certain lifestyles, you establish connections to other people and those people enable you to get the jobs that are out there.

If you look at who is getting jobs these days, it's generally people with connections to other people. So I think we move forward if the economy remains the way it is and it doesn't start to move forward in a more sustainable or growth-oriented way, you'll see that sort of implicit nepotism start to come into employment. And you'll watch as the wealth gap continues to grow because Hispanic people and black people will not have the same social connections to those job opportunities that do provide that wealth growth.

MARTIN: Do you think that parents who have this point of view need to be very clear about it with their offspring? Mr. Banks, I'll start with you and Alvin, I'll give you the last one.

BANKS: I think, more importantly, what has to happen is the conversation has got to take place with these individuals, with these baby boomers. Part of what I would say is, I think, in many cases, the investment advisors that these individuals are working with are not taking a sufficiently holistic view of wealth and wealth needs and intergenerational issues and, hence, the first dialog, I think, has to take place with the baby boomer themself(ph) and then, ultimately a dialog with the children and grandchildren of those baby boomers.

MARTIN: I see your point. You're saying that families have this apprehension, but they're not addressing it, they're not facing it squarely. That's interesting.

Alvin, what conversations do you think need to flow from this within families?

HALL: I agree with Keith. I think that the baby boomers need to sit down and start talking to their children about the skills necessary to both inherit and sustain wealth. I think that many baby boomers, because of the generation that they came from, where the parents were very stolid and didn't talk about money, they inherited that. And because they made it on their own in a very competitive world, they tend to be a bit secret.

At the same time, they somewhat infantilized their children. They kept them away from money because they wanted them to have better lives, different freedoms, to be able to walk in the woods and enjoy nature. But at the same time, they gave them this material orientation. You have to have that Louis Vuitton bag. You have to have this particular item. So you have the materialism coming in direct confrontation with an infantilized attitude toward money.

I think that baby boomers need to sit down and begin a dialog that will lead their children to some understanding and often that will have to happen with a financial advisor who they can grow to trust and who they will know will have their interests in mind.

MARTIN: Alvin Hall is our money coach. He's our regular contributor on matters of personal finance and the economy. Keith Banks is president of the investment firm, the private banking firm, US Trust. They both joined us from our studio in New York.

Gentlemen, thank you so much for joining us.

BANKS: Good to be here. Thank you.

HALL: You're welcome.

MARTIN: If you'd like to read the study of what we've been talking about for yourself, please go to our website. Go to Click on the Programs tab, and then on TELL ME MORE.

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