The nation’s wealthiest are reaching retirement age, and whilethey probably have been planning their finances for retirement foryears, they should also be planning for the inheritance of theirfortunes. The average age of an ultra-high net worth (UHNW)individual is 59 for men and 57 for women. Within the next 10years, nearly 16,000 ultra-high net worth individuals with acombined net worth of over $4.1 trillion will pass on their wealthto the next generation.

As many of these individuals approach retirement and think abouttheir legacies and wealth succession plans, a huge amount of wealthis set to change hands in the coming decades. This era of familialwealth transfers and giving is unprecedented. Over the next 30years, $16 trillion of UHNW wealth is expected to be transferred tothe next generation, and the United States accounts for 40% ofwealth transfers, according to findings from a recent NFP-sponsoredWealth-X study, Family Wealth Transfers Report, creating a newgeneration of UHNW individuals. The latest Wealth-X report examinesdata and trends associated with wealth succession globally,providing an in-depth analysis on the worlds liquid and illiquidwealth transfer to reveal its relevance for succession planning,and further efficient protection of assets through insurance.

"It is important that the insurance portfolio be structuredproperly to not only fit the client’s needs and goals, but to alsobe in accordance with all the applicable jurisdictionalguidelines. Therefore, the insurance advisor should be wellversed in the global marketplace and understand how to properlystructure each client’s unique insurance portfolio,” says CelesteMoya, vice president of international insurance and productmanagement for National Financial Partners Corp., an insuranceadvisory and brokerage services provider to high-net worthindividuals, and also a provider of benefits, P&C and lifeinsurance.

“One more key aspect the client should keep in mind is thattheir insurance portfolio does not just provide efficient wealthtransfer solutions, but can also preserve the families legacy byprotecting family values, business ideals and philanthropic goals,which can all be lost without proper planning,” she continues.

As many come into new money, the next generation could lose upto half of the fortune of an UHNW individual, the report says. Theimportance of planning for the transfer, and furthermore, theobtaining insurance (especially life insurance products) helpsprovide control and stability back to the UHNW individual regardingtheir inheritance.

Considering the United States is the largest country by UHNWpopulation, accounting for nearly 40% of wealth transfers over thenext several years, the report explores the impact of UHNWpopulations, delving into the impact of transfers on taxes,philanthropy, private banking and family offices.

Click through the following pages to find out more about theFamily Wealth Transfers Report and its impact on the insuranceindustry.

By the numbers: The growth of the UHNWpopulation

According to NFP and Wealth-X's survey, the global UHNWpopulation is made up of individuals with a net worth of $40million or more, and this number increased to 211,235 individualsin 2014, with a combined wealth of nearly $30 trillion. These arerecord high numbers of both UHNW population and wealth, havingrisen 6% and 7% from last year, respectively.

Furthermore, amidst growth in terms of UHNW population size andtotal wealth, there has also been a rise of self-made UHNWindividuals in the last 20 years. Today, self-made individuals makeup to 64% of the UHNW population. These individuals also accountfor 60%--or $18 trillion—of the global total of UHNW wealth.

The influence of this growth in population and wealth impactsseveral industries, from wealth management to luxury andphilanthropy. As UHNW individuals come to retirement age, andwealth successions plans are put into actions, these prioritiesshift toward securing ending legacies. Sometimes, this takes theform of philanthropic donations and bequests, which allows thesuccess of the wealth to be shared across wealth tiers. Influencessuch as globalization, technology, and deregulation among otheractors enable for billions of dollars in wealth to be created in amatter of years, rather than a matter of decades, fostering apositive growth environment for the wealth of UHNW individuals,particularly those who are self-made.

"Since the majority of these UHNW individuals are now what werefer to as 'global citizens' because they generally have apresence in many different jurisdictions--both in personal andbusiness assets, it is very important that their team of advisorsreally understand the global marketplace and have the rightresources to address the various jurisdictional hurdles that mayarise,” Moya says.

With the rise of ultra-wealthy entrepreneurs, combined with theimportance of wealth transfers, it is likely that many of the nextgeneration will be starting off with some inherited wealth, butalso will be building their own fortunes.

With two-thirds of the world’s wealthiest being first-generationwealth creators, they will, for the first time, have a hand intheir own succession planning. Those in the second or thirdgeneration of wealth will have had a greater experience with wealthtransfers, but the evolution of the UHNW sector over the lastseveral years indicates that this will be a new experience formany. Successful wealth transfers are critical for UHNW individualsof all wealth sources to solidify their legacies, and notably,towards the end of their lives, this becomes one of their biggestpriorities.

The age of inheritance

Although early planning can ease the process, it is never toolate to start conversations about wealth transfers. The currentUHNW population is, on average, twice as old as the rest of theworld with an average age of 59, compared to the global average age(30 years old). Billionaires are even older—with an average age of63.

But UHNW individuals in their 70s and 80s also hold adisproportionate share of UHNW wealth, indicating that wealthincreases with age. Those individuals who are 80 years and olderare three times wealthier than the youngest group of UHNWindividuals. For those 80 years old and over, the average liquidholdings alone reaches nearly $100 million, more than three timesthe minimum threshold to become a UHNW individual. Additionally,58% of all UHNW wealth is held by those who are 60 years old orolder, and 82% of wealth is held by those who are aged 50 andabove.

With this trend of wealth rising with age, the next few yearswill presumably be an intensive period of family wealth transfers,as a tremendous amount of wealth is expected to change hands fromthe aging UHNW population. This is especially important in theU.S., as UHNW individuals will account for nearly 40% of the wealthtransfers within the next several years.

Wealth transfers can consist of many different types of assets,particularly liquid assets. As the study indicates, just as networth increases with age, so does liquidity (in absolute terms aswell as proportion of wealth). As wealthy populations age,individuals tend to sell shares of their businesses to financetheir children’s education. They make luxury acquisitions ordiversify their assets.

But UHNW individuals also must consider the potential cost oftransferring their wealth to the next generations. Estate taxes,for one, can be a huge expense. In some countries, they can be ashigh as 40% to 50% of an UHNW individual’s net worth. In somecases, other assets may need to be sold in order to meet the highcost of inheritance taxes.

In the United States, estate taxes are at 40% for those withmore than $5.34 million in assets in 2014

“It is important that they understand the value that aninsurance portfolio can add to their wealth transfer plan due tothe various key benefits it can provide, including: assetpreservation, creditor protection, tax advantages, liquidity,diversification, stability, estate equalization, protection againstsovereign and currency risk and legacy preservation. Insurance is afinancial instrument that goes beyond just providing a deathbenefit and that can be customized to fit many different wealthtransfer needs, both for the clients personal and business assets;therefore, it should be a key part of their overall wealth transferplan," Moya says.

Family Wealth Transfers Overview

By leveraging Wealth-X’s proprietary database of dossiers onmore than 100,000 individuals, the study has forecasted how muchwealth is due to be transferred, as well as how many UHNWindividuals are likely to pass on their wealth to the nextgeneration within the next 10, 20 and 30 years. Forecasting thewealth transfer takes into account data, including age, geography,family relationships and life expectancy.

"Insurance advisors should begin to engage future generations asearly as possible in the planning process so that when the timecomes for those future generations to take the lead in the estateor business, they are well versed on how to best preserve theirassets and continue to plan for future generations," Moya says.

As previously stated, a massive amount of wealth is expected tochange hands within the next decade, at $4.1 trillion. Within thenext 30 years, this number increases four times—to $16 trillion.The likelihood of a wealth transfer taking place will increase witheach decade, according to the study. Many UHNW individuals are notready to pass on their wealth within the next 10 years.

When taking into account the profile of the average UHNWindividual today, there are fewer women passing on their wealth asa proportion of the UHNW population, but this is also largely dueto the fact that the average age of female UHNW individuals is 57years, compared to age 59 for men. Women make up 13% of the world’sUHNW population, but they will only account for 8% of those whotransfer their wealth over the next three decades. Self-madeindividuals make up 68% of the UHNW population that will pass ontheir fortunes within the coming years.

Private holdings, in particular, form the largest component ofthe UHNW individuals set to transfer their wealth, presenting a $6trillion opportunity for banks, as not all children of wealthindividuals will want to continue the legacy of the familybusiness. Many children seek an exit from these businesses, whichare often strongly associated with the first generation wealth.

“The preservation of assets across generations needs to bea priority. As wealth transfers to different generations who mayhave different goals and priorities, both from a personal andbusiness perspective, it will be important that the wealth transferplan be structured in way that protects against the degradation ofassets and that is also flexible enough to overcome various issuesthat could arise," says Moya.

Cash holdings

When examining the value of UHNW assets, Wealth-X says that wecan expect nearly $5 trillion in liquid assets to be passed ontothe next generation within the next 30 years, creating more freedomand independence for the second generation of UHNW individuals toinvest and spend their inherited liquid assets according to theirown discretion, without impacting their primary businessholdings.

But cash holdings should be optimized for their efficiencyduring a transfer to the next generation, the study claims. The useof insurance and other specialty products for these uniquesituations can help ensure the cash is held in optimal assets.

Wealth-X puts this massive amount of cash into perspective byindicating that the amount of money UHNW individuals are due topass on is large enough to purchase Apple Inc., the most valuablecompany in the world, seven times over. Furthermore, all of thiscould be done without having to sell any non-cash holdings.

“UHNW clients should be prepared to discuss with their insuranceadvisors any insurance coverage currently in place, any particulargoals they need to achieve specific to their insuranceportfolio--including business continuation, buy-sell agreements orestate planning, insurance with exit strategies--potentialfinancial hurdles or concerns and an overview of the rest of thetheir wealth transfer plan,” Moya says.

The geography of transfers

North America is expected to be the location of the largesttransfer of UHNW wealth within the next 30 years, according to theWealth-X report, in both absolute and relative terms. Sixty-twopercent of North America’s UHNW wealth, equal to $6.35 billion,will change hands in the next 30 years, representing 40% of theglobal total.

Similarly, European wealth transfer is expected to be smallerthan North America in both absolute and relative terms, but Europealready has a higher proportion of inherited wealth, according tothe report. Forty-five percent of Europe’s UHNW individuals areeither fully or partially inheriting their wealth, compared to only25% in North America. While this number reflects the fact that alarge portion of the wealth in Europe has already changed hands toa new generation, this phenomenon is expected to occur in manyother regions around the globe within the next several years,including America.

Philanthropic bequests

While many family wealth transfers are expected to occur overthe next 30 years, there is also an expected rise in largephilanthropic bequests. Philanthropy is one way that UHNWindividuals can continue their legacies, while also giving to acause that is meaningful to them.

Philanthropic donations by the global UHNW population areexpected to total approximately $300 billion, and North AmericanUHNW individuals will constitute 57% of these pledges, the reportstates.

Modern forms of philanthropy also involve more than merelypledging funds and making a donation. Instead, more hands-on andholistic approaches are becoming much more common. This reduces thesignificance of bequests, as a large portion of donations are madeover the course of a lifetime, and it helps to ensure that thegifts made are in line with what the original UHNW individualdesired.

The future of UHNW individuals

Wealth-X says that we can expect to see constant fluctuations inboth the population and total wealth of the world’s UHNWindividuals, considering the dynamic demographics and estimatesregarding wealth transfers to the next generation.

The study forecasts the future landscape of the UHNW populationuntil 2040, asserting that the population and their total wealthwill have approximately trebled. Wealth-X anticipates approximatelya population of over a half a million UHNW individuals with a totalwealth of $88 trillion.

Within this population, the fastest growing wealth tiers areexpected to be those at the very top and also the bottom. Thebillionaires, as well as those worth between $30 and $50 million.For billionaires, the study says, the financial gains from earlysuccession planning can amount to billions themselves, highlightingthe importance of planning a wealth transfer early.

Furthermore, Wealth-X predicts that the population of femaleUHNW individuals will grow faster than their male counterparts, andthe self-made female UHNW population will grow even more rapidly.Ultimately, we can expect this to change the current wealth sourcedynamics, as self-made UHNW women are a minority. While only 34% offemale UHNW individuals are self-made, this number is expected torise by 55% by 2050, Wealth-X predicts, as a result of increasedentrepreneurship from women around the world. More women are alsoexpected to inherit some of their wealth, and thus have anopportunity to create even more for themselves, creating theprospect of a positive future for the wealth of UHNW women.