The 'Horizontal' Wealth Transfer: Why Spouses, Not Kids, Are Inheriting Trillions First
Before it reaches younger heirs, $54 trillion will move horizontally to surviving spouses. Here is how to prepare.
Gen Xers and millennials are in line to receive trillions of dollars in the Great Wealth Transfer, but first the money must pass to the surviving spouse. Known as horizontal wealth transfer, women will benefit more, as they statistically outlive their husbands by an average of five years.
Of the $124 trillion in wealth expected to transfer hands during the next two decades, $54 trillion will move horizontally to the spouse, according to a 2024 Cerulli Associates report. Once the widow spends money on healthcare, travel and other expenses, what's left over will go to the younger generations.
Inheritance of any size may be welcome, given that many Gen Xers and millennials, based on a new survey conducted by Morning Consult on behalf of Kiplinger, don't expect any windfall at all. That's even though 47% of parents expect to leave a meaningful one.
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This gap between expectation and reality highlights a crucial step in the wealth transfer process: The horizontal shift between spouses. Understanding why it occurs and how surviving spouses can plan for it is essential to preserving family wealth for the next generation.
Why the horizontal wealth transfer happens
Making sure your spouse is taken care of usually drives horizontal wealth transfer, but if that's not enough, the tax code offers incentives to stay motivated. The Unlimited Marital Deduction lets an individual transfer an unlimited amount of assets to the surviving spouse free of estate and gift taxes. If the wealth was passed to an adult child or children upon the first spouse's death, it could trigger estate taxes in certain circumstances.
"The typical process is you leave your money to your spouse, and after that it goes to the kids," said Derrick Longo, a wealth adviser at Exencial Wealth Advisors. "But there's no default right answer. It's very specific for every family and situation."
If you are a surviving spouse, do this
In the Great Wealth Transfer, surviving spouses will be the first to receive the wealth; they need to plan now to preserve it later.
Take the so-called widow's tax penalty for starters. This occurs in the year after a spouse dies and the surviving partner starts filing as a single taxpayer. At that time, their tax brackets are reduced by 50%, and the standard deduction is cut in half, forcing them to pay more taxes if they don't plan for it. But if they do prepare, they have options, including:
- If the surviving spouse has dependent children, they can delay filing as single for two years. After that period, they may choose to file as head of household.
- They can file a married filing jointly return for the calendar year in which the spouse passed away.
- Space out income-generating events such as retirement withdrawals and Roth conversions from the inheritance.
On the positive side, the surviving spouse gets a big tax break on inherited real estate, stocks and taxable investment and savings accounts. The value of the assets resets to the current market value on the date of death, erasing capital gains built up over the lifetime (known as a "step-up" in cost basis). If you sell soon after, you may owe little to no capital gains tax, depending on state property laws and how the assets were titled.
The surviving spouse can also roll an inherited IRA or 401(k) into their own name, delaying required minimum distributions (RMDs) until they turn age 73 or 75, depending on their birth year. If a child inherits that same account, the 10-year rule usually applies, requiring them to empty the account (and pay the taxes) within a decade.
Manage healthcare to preserve future wealth
Expected drains on future generations' inheritances include long-term care and healthcare costs. In Kiplinger's survey, 24% of parents fear these costs will erode their wealth.
It makes sense. Fidelity estimates the average 65-year-old will spend about $185,000 on healthcare in retirement, and that doesn't include any long-term care, which can get expensive. The average annual cost for a private room in a nursing home was $129,575 in 2025, while an in-home aide cost $80,080. Money once earmarked for the kids can quickly become money spent on aging without the proper planning.
When it comes to covering healthcare expenses in retirement, surviving spouses can take out long-term care insurance, self-fund future healthcare expenses from their savings, health savings accounts (HSAs) or investments.
Which option makes sense for you depends on your health, longevity and finances.
For instance, long-term care insurance may make the most sense if:
- You can afford the premiums.
- Your family or trusted friends can handle the paperwork and claims process for you.
- You crave peace of mind that comes with insurance.
- You are healthy enough to meet underwriting guidelines.
Meanwhile, self-funding your long-term care needs may make the most sense if:
- You're healthy.
- Your family health history is largely free of chronic or heritable debilitating illnesses.
- You've saved enough for your retirement.
- You have liquid assets you can access easily without triggering major tax consequences.
Figure out how to spend to keep the estate growing
An inheritance can bring a desire to spend more, but to ensure the surviving spouse has enough to go around, a retirement spending strategy is essential to the planning process. Spouses can use several withdrawal strategies beyond the traditional 4% rule, including the bucket approach, the flooring strategy and a delayed Social Security collection plan, among others.
If you need help staying disciplined and want to worry less because you know where your money is and how much you can spend, the bucket approach may be for you. If you want a steady monthly income or are hesitant to spend because of stock market fluctuations, the me-first or flooring method of spending might be for you. For surviving spouses who want to maximize cash flow later on, the delaying Social Security strategy could be the best approach.
The idea is to find a plan that matches you and stick to it. That will ensure you have enough money to live your ideal retirement and have some left over for the remaining heirs.
Plan today to preserve for tomorrow
The horizontal wealth transfer is the first stop of the Great Wealth Transfer, and it is set to benefit women primarily. With $54 trillion expected to pass to surviving spouses, that is a lot of money to protect, preserve and grow.
The good news is the next-in-line spouse doesn't have to wait until their partner is gone to prepare. A little foresight now can help ensure the windfall lasts for generations to come.
More Trillion Dollar Talk
- How Real Families Are Handling The Great Wealth Transfer
- The $124 Trillion Great Wealth Transfer: Fact vs Fiction Quiz
- Could You Handle a Sudden Windfall?
- Before You Leave Your Home to Your Children, Ask These Questions
