From Leonard Steinberg at Compass:
If you thought the $7 trillion Covid-linked stimulus was big, think again.
It is pittance compared to the biggest stimulus that has started and will continue for the next 2 decades amounting to over $80 trillion! Reduced – and eliminated – estate taxes (that many view as double taxation, although many unrealized gains passed to heirs remain untaxed) have helped fuel this to record levels. Yes, the great wealth transfer has already begun and even Ray Dalio thinks it is contributing to the continued resilience of the US economy.
Here are some additional thoughts on the GREAT WEALTH TRANSFER:
1. As many wealthier people live longer, some wealth transfer will be delayed.
2. Some wealth transfer will be diluted to help pay for increasingly costly healthcare.
3. Lots of wealth transfer will happen prior to death, for tax reasons and because practical parents and grandparents don’t want to be given the evil eye at the Thanksgiving table…..
4. We always think of 20-year-old heirs, but in reality most wealth is transferred to those in their 40’s, 50’s and 60’s. The kid of an 80 year old is not 20….mostly!
5. Not all those passing on wealth are billionaires or even millionaires. The vast, vast majority have significantly less wealth. But an inheritance of even $50-100,000 can change the entire trajectory of someone willing to buy a home who has struggled saving for a downpayment. 21% of millionaires received some inheritance, but only 3% received an inheritance of $1 million or above. 79% of millionaires did not receive any inheritance from their family or relatives.
6. While kids mostly inherit and are gifted, often grandkids are too, so this transfer does not apply exclusively to one demographic.
7. Often the very wealthiest families have started wealth transfer well before death (mostly to minimize federal estate taxes that kick in above $13 million), often decades, so those heirs may not be as reliant on inheritance to buy a home. Fewer than 1% of Americans have this net worth or more…..
The best news about wealth transfer: often wills, estates and trusts require and/or encourage inherited wealth to be used on education and……housing.
This may also impose the biggest demand-fuel for more expensive homes and add fuel to rising prices, not to mention overall home inflation…..if the ‘other’s stimulus did, why wouldn’t this one? Stimulus – of all kinds – usually fuels demand…..and pricing.