American families are 'woefully unprepared' for the great wealth transfer

The largest intergenerational wealth transfer in history is happening, and people are not prepared, according to Michael Pelzar, chief investment officer at Bank of America Private Bank.

“Nearly half of wealthy families don’t have even the most basic elements of estate planning in place,” Pelzar said. That means families are woefully unprepared for the transfer of wealth that’s about to take place.

Baby boomers alone are expected to pass on more than $68 trillion in the coming years. However, Pelzar explains, nearly half of wealthy families don't have the necessary preparations, such as a will, power of attorney or health care proxy, to make inheritance easy.

“Where problems arise in the transfer of wealth from one generation to the next is when communications break down or don’t happen,” Pelzar said. “People aren’t educated about the value of trust and its benefits.”

Christina Lecholop, a certified financial planner at CAPTRUST, attributed this lack of action on estate planning to the “expanding and complex” investment universe, a shift in the definition of retirement, an evolving understanding of careers and the geopolitical climate.

“People tend to delay things because of uncertainty,” Lecholop said. “There’s a lot of headlines in the newspapers. There’s a lot of noise that can tell people not to act when I think they should. And while all of that is a very real factor to pay attention to, it’s also important to get started, because if people delay, they miss out on opportunities.”

Read more: What happens to a bank account when someone dies?

Lecholop stressed the benefits of working with a professional to help understand finances and establish goals and priorities that help dictate investment decisions.

“Having a plan, even if it’s something as simple as replacing my income when I’m 65, is a great place to start,” Lecholop said. “From there, you can figure out, ‘How much do I need to save? What kind of growth rate do I need? How many years do I need to save?’ It’s just really simple things, and then you can add to them as you go.”

A father throws a baseball to his son to hit outside. (Getty Images) (SeventyFour via Getty Images)

“It’s important to start somewhere with goals,” Lecholop continued, “and then when you invest, invest with a clear goal. Know what you’re investing in, choose the right vehicles and understand those vehicles well.”

This type of planning can help people organize smoother transfers and avoid passing on “conflicts” to other generations, Pelzar said.

The story continues

No generation wants to pass on its problems to the next, so it's important that we put planning in place and do the right communication and education up front, Pelzar said.

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