The Great Wealth Transfer: New Billionaires Inherit More Than They Earn

UBS Report Reveals Inheritance Surpasses Entrepreneurship as a Source of Wealth for New Billionaires

In a surprising turn of events, a recent report by UBS has revealed that new billionaires are accumulating more wealth through inheritance than through entrepreneurship. This marks the first time in nine years of research that the Swiss bank has observed such a significant discrepancy. The study, which covers a 12-month period up to April 2023, found that 53 new billionaires inherited a staggering total of $150.8 billion, surpassing the $140.7 billion generated by 84 new self-made billionaires. Particularly noteworthy is the fact that American billionaires who inherited their wealth reported an average net worth of $2.2 billion, outstripping billionaire entrepreneurs by $700 million.

The Great Wealth Transfer:

According to UBS, this shift in wealth accumulation signifies the beginning of the Great Wealth Transfer, a phenomenon that is expected to see over 1,000 billionaires passing down a combined $5.2 trillion to their heirs over the next two to three decades. This transfer of wealth is also a consequence of the slowdown in initial public offerings (IPOs), which has restricted some entrepreneurs from realizing the full value of their businesses. Prior to the market cooldown, IPOs alone minted at least 60 new billionaires in 2021, as reported by Forbes.

Preserving Wealth and Minimizing Taxes:

The ultra-wealthy have an array of strategies at their disposal to ensure the preservation of their wealth and minimize tax liabilities. In the United States, for instance, taxpayers can establish trusts that can last for up to 1,000 years, protecting assets from creditors and only incurring the federal estate tax of 40% once. Through offshore life insurance policies, individuals can transfer assets such as stocks and yachts to their heirs without incurring estate taxes. Wealthy parents seeking to take advantage of expiring tax breaks while retaining access to their assets can utilize trusts for their spouses, allowing them to save on taxes while maintaining control over their wealth.

The Impact on Philanthropy:

UBS’s survey suggests that these dynastic fortunes are likely to prioritize wealth preservation over philanthropic endeavors. Sixty percent of heirs cited passing their wealth onto future generations as a top priority, while only 32% selected charitable giving and making a societal impact. In comparison, a similar percentage of first-generation billionaires listed wealth preservation as a primary goal, but a higher proportion (68%) also expressed a commitment to philanthropy.

Conclusion:

The findings of UBS’s report shed light on a significant shift in the accumulation of wealth among new billionaires. The rise of inherited wealth over entrepreneurial success signifies the beginning of the Great Wealth Transfer, which is expected to see an unprecedented amount of wealth being passed down to future generations. The ability of the wealthy to employ various strategies to preserve their wealth and minimize tax liabilities further exacerbates this trend. As these fortunes compound, it remains to be seen whether the priorities of heirs will continue to focus on wealth preservation rather than philanthropic impact. The implications of this phenomenon are far-reaching, shaping the landscape of wealth distribution and societal impact for years to come.