Inheritance estimates diverge by tens of trillions

Two major estimates of the coming inheritance wave are far apart, and that gap matters for investors trying to understand where household money may move next. Visa Business and Economic Insights estimates baby boomers will pass $36 trillion to Gen X and millennials over the next 20 years, while Cerulli Associates estimates older generations will transfer $105 trillion to heirs by 2048.

The “great wealth transfer” refers to assets moving from older Americans to spouses, children, other heirs and charities. The debate is less about whether wealth will change hands and more about how much of it will turn into consumer spending, invested assets or money managed by advisors.

Why the estimates are so different

Visa and Cerulli are measuring different things. Visa, a payments company, focused on inherited money that could affect everyday consumer spending. Cerulli, a financial research firm, looked more broadly at total wealth transfers across generations, including large fortunes held by wealthy families.

Wayne Best, Visa’s chief economist, said the firm wanted to estimate how much transferred wealth would actually be spent. Visa began with about $93 trillion in wealth held by baby boomers, then subtracted $5 trillion in liabilities, including mortgage debt.

Visa also removed $28 trillion held by the top 1%, which it defined as households with at least $12 million in wealth. Best said that group uses money differently from typical consumers and spends a smaller share of its assets.

The firm then subtracted an estimated $16 trillion for boomer retirement spending, which Visa said could be higher than prior generations because boomers are living longer and using more of their assets. Visa also removed $8 trillion for taxes and charitable giving.

After those deductions, Visa arrived at $36 trillion in boomer wealth expected to go to heirs. It estimates $28 trillion of that will flow into savings and investments, while $8 trillion will be spent, mainly on cars, homes, travel and retail.

Cerulli sees a larger transfer

Cerulli’s calculation starts from a broader base. The firm estimates $124 trillion in total transferable wealth, with about $18 trillion going to charity. That leaves $106 trillion going to heirs and spouses, according to Cerulli.

Chayce Horton, Cerulli’s associate director of wealth management, said the largest effects will likely show up in wealth management rather than in consumer companies. He said half of the more than $100 trillion expected to transfer will come from high-net-worth and ultra-wealthy families.

Cerulli also expects some of the first transfers to go to spouses, many of them women. Horton said spouses are often younger and live longer. The firm estimates $4 trillion will move to spouses before later passing to children and other family members.

Gen X is expected to receive money first, with Cerulli estimating $14 trillion in inheritances over the next 10 years. Millennials are expected to receive the most over time, with an estimated $46 trillion over the next 25 years.

Why companies are watching

The competing figures show why banks, advisors, asset managers, payment companies and retailers are paying close attention. A dollar that is inherited can be spent, saved, invested, donated or used to pay taxes and debt, and each path affects a different part of the economy.

Horton said one in four wealth management clients now comes from inherited wealth, behind business owners and founders but ahead of corporate executives. He said firms serving wealthy clients need relationships across spouses and generations as assets change hands.

This story draws on original reporting from CNBC.