Why most Americans aren't ready to inherit wealth

Trillions of dollars will trickle down family trees over the next 20 years as the "great wealth transfer" rolls on.

But new research from New York Life suggests that many Americans poised to receive an inheritance will need guidance as they lack the confidence to manage the oncoming wealth. 

The firm's recurring Wealth Watch survey conducted in early June polled 4,437 adults about their ability to secure their financial futures. According to New York Life, 15% of American adults expect to receive an inheritance in the next decade.

However, only 42% of adults who expect to receive an inheritance feel very comfortable financially handling the wealth that will be passed down. Additionally, inheritors list lack of emergency savings (29%), health care costs (27%) and credit card debt (26%) as the biggest risks to their financial security and well-being.

"We are still in a turbulent economic environment. Inflation and higher interest rates continue to make credit card debt a challenge, compounded by unexpected expenses and a lack of emergency savings," Suzanne Schmitt, head of financial wellness at New York Life, said in a statement. "The data show us that people continue to be focused on the basics — paying down debt, building emergency savings and contributing to their retirement — but it can feel incredibly difficult to plan for longer-term goals like buying a home, growing your family or retiring when day-to-day challenges are occupying your time and attention."

READ MORE: Will Generation X miss out on the Great Wealth Transfer?

The wealth transfer and winning the business of heirs continues to be a key to growth for many wealth management firms, and industry research firm Cerulli Associates says a total of $72.6 trillion in assets will pass down to heirs through 2045.

But young prospects are still not being prioritized by wealth managers. A report by Financial Planning's parent company Arizent that explains how advisors can catch up with peers who are further along in their pursuit of the next generation finds only 35% deemed younger investors a "critical priority" or a "high but not critical priority" to acquire. 

Young clients fall behind high net worth clients, whose investable assets were at least $1 million but under $30 million, as well as ultrahigh net worth clients, who had at least $30 million, and business owners and retirement plans such as 401(k)s. 

The Arizent probe found that only 57% of all firms had a comprehensive wealth transfer strategy to offer those clients, defined as "a framework to ensure a client's ability to successfully transition assets to heirs." 

The disparity was especially pronounced between the largest firms, which each had $1 billion or more in assets under management, and the smallest, which had under $100 million in AUM. 

More than two-thirds, or 68%, of the largest firms had a wealth transfer strategy in place, but only 42% of the smallest ones did. 

When discussing the great wealth transfer at Financial Planning's 2023 INVEST conference, Joy Crenshaw, Nuveen's head of global sales and advisor development, said an important part of winning the war for next-generation clients is to approach working with them from a new perspective. 

Crenshaw also said the industry should rethink how this customer segment is referred to in order to make their value more apparent to wealth managers.

"I don't really like the concept of younger investors because it puts them in a box," she said. "We should really think of them as our future high net worth clients. And if we make that mindset change, what kind of behavior changes will follow?"

As advisors work on ways to woo the next wave of wealth, here are some key takeaways from New York Life to help them understand what's top of mind to inheritors.