The Great Wealth Transfer: A Guide for Millennials & Gen Z

What is the Great Wealth Transfer?

Understanding the realities

While the Great Wealth Transfer is often described as a historic shift, it’s important to put these projections into perspective.

Much of the wealth expected to change hands is highly concentrated among a relatively small portion of households. National research shows that only a minority of Americans—about one in five—receive inheritances, and for many families, the amounts are modest.

Although younger adults often expect that an inheritance could meaningfully change their financial future, those expectations can go beyond what their aging parents know they’ll actually leave. Rising healthcare costs, mortgage debt and long-term care expenses may reduce the value of what ultimately passes to the next generation.

While some may inherit assets that can help them reach financial goals, others may experience this shift differently. Understanding these realities can help set clearer expectations and support thoughtful future planning.

Why inheritance is becoming more common

There are several trends that are contributing to the rise in anticipated inheritances among younger adults:

• Growing household wealth: Rising stock prices and home values have increased household wealth across the country, so the amount passed from one generation to the next has naturally grown larger.
• Aging parents with higher-value assets: Many Baby Boomers accumulated retirement savings, real estate and investment accounts over long careers, and those assets are now factored into their estate plans.
• Awareness among younger generations: Surveys show that most millennials and Gen Z adults believe they may inherit money or property in the future, partly due to increased public conversation about the Great Wealth Transfer and the visibility of family home values.

What does the Great Wealth Transfer mean for you?

If you’re a millennial or a Gen Z adult, this shift may bring both opportunity and responsibility. You may feel that even a small inheritance could help you reach major financial targets like buying a home, paying down debt or growing long-term investments.

At the same time, the research suggests that inheritance won’t look the same for everyone. A large portion of the country’s wealth is held by a small number of households, and inheritances tend to reflect that. In other words, some families may receive substantial assets, while others may receive little or none.

For those who do inherit, the experience often brings mixed emotions. It typically happens during major life moments, like the loss of a loved one, and the decisions can feel overwhelming. Taking time to understand what you’re receiving and how it fits into your finances can help you feel more confident and prepared.

What to do first when you receive an inheritance

Receiving an inheritance can feel both meaningful and unexpected. Before making any sudden decisions, take these steps first:

1. Pause before acting. Step back to fully understand your situation. There’s rarely a need to make immediate choices.

2. Review the type of inheritance received. Different assets come with different rules: cash, investment accounts, retirement accounts such as IRAs, real estate, life insurance proceeds and personal property. Each asset type comes with unique considerations and specific steps.

3. Understand time sensitivity: Some inherited accounts, including certain retirement plans, do have required distribution timelines. Knowing about these early can help you plan better and avoid unexpected tax consequences.

4. Gather the proper documents: Statements, account numbers and any instructions from the estate executor can help you map out a clear picture of what you now own.

Understanding the tax implications of inheritance

Many people aren’t sure if—or how—an inheritance is taxable. The answer largely depends on the type of asset and how you received it.

Cash inheritances that come directly from an estate generally aren’t taxed at the federal level. However, any interest earned after you receive the funds may be.

Investment accounts, like stocks or other investments, may provide you with a step-up in basis. This adjusts the value of the asset to its market value at the time of inheritance, which may reduce future capital gains taxes if you decide to sell.

Real estate, like inherited properties, may also receive a step-up in basis. If you sell a home, the tax owed will typically depend on the difference between the stepped-up value and the sale price.

Tax rules can be complex and vary by state. Understanding both the federal and state tax rules early can help you make informed choices and avoid common mistakes.

How step-up in basis affects inherited investments

A step-up in basis can significantly reduce how much tax you may owe on inherited assets. For example, if a stock was purchased many years ago for $5,000 and is worth $15,000 at the time of inheritance, the step-up in basis may adjust your cost basis to that higher value. This means you won’t owe taxes on the $10,000 in appreciation that came before you inherited it. If you choose to sell the investment, you may owe taxes only on gains above that stepped-up amount.

This rule applies to many types of appreciated assets, including real estate and certain types of investments. Understanding how a step-up in basis works can help you make better decisions about whether to hold, sell or reinvest inherited assets.

How taxes work for inherited retirement accounts

Retirement accounts are treated differently than other investments when it comes to inheritance tax. The rules depend on whether the account is a traditional IRA, Roth IRA, employer plan or another type of retirement savings account.

Many beneficiaries now fall under a 10-year withdrawal rule, which generally requires the account to be emptied within 10 years of inheritance. Traditional accounts may trigger income taxes when funds are withdrawn. Roth accounts may not, depending on how long the original account was open.

Because these rules can vary based on relationship and account type, it may help to review your options before making any moves. Taking distributions too early or too late may lead to unexpected tax obligations.

How to manage inheritance to build long-term wealth

Properly managing your inheritance can be an opportunity to strengthen your personal finances as well as to grow long-term wealth. Consider these first steps when you receive an inheritance:

• Create or build your emergency savings. Setting aside cash for unexpected expenses can help you prepare for the future.
• Pay down high-interest debt. Reducing obligations like credit card balances may relieve financial pressure and create room for other financial goals.
• Invest for long-term financial growth: Investing your inheritance over time, especially as a young adult, can allow that money to compound.
• Plan for major milestones: An inheritance may help you save for a down payment, education costs or other important goals.
• Develop sustainable money habits: Building a plan can help you feel confident and stay on track as your finances evolve.

How to plan for receiving an inheritance

If you know you’re going to get an inheritance, there are a few useful steps you can take to ensure you are prepared:

1. Start by understanding financial basics, such as how savings, investing and budgeting work as well as tax implications and other common terms and tools.
2. Talk with your loved ones to help reduce any uncertainty.
3. Set realistic expectations—not every household will experience a large transfer of wealth. This can help you better prepare your own financial stability whether you receive one or not.
4. Review your goals regularly. Ensuring that you’ve accounted for all your financial needs can better prepare you for future opportunities.

If you’re thinking about how an inheritance may fit into your long-term plans, you don’t have to navigate the decisions alone. Connecting with a financial professional can help you understand your options and feel more confident about your next steps.