Wealth transfer and estate planning can be sensitive topics for some, but no matter one’s wealth level, these are crucial for families to address to ensure peace of mind that one’s financial affairs are in order.
One of the largest transfers of wealth is projected to occur within the next 40 years. Are wealthy households prepared to appropriately pass their assets to the next generation? What concerns do wealthy households have regarding legacy transfer and whether their wealth will be managed responsibly by their families?
The number of high net worth U.S. households – those with a net worth of at least $5 million (not including primary residence) - reached 1.14 million at the end of 2012, up from 1.078 million at the end of 2011. The number of households with a net worth between $1 million and $4.9 million NIPR has increased as well to nearly nine million at the end of 2012, up from 8.6 million at the end of the previous year.
Wealth transfer and estate planning can be sensitive topics for some, but no matter one’s wealth level, these are crucial for families to address to ensure peace of mind that one’s financial affairs are in order that their estate will be distributed to loved ones as per instructions. And yet less than one-fourth of households with a net worth of at least $1 million (not including primary residence) said they have received advice from their primary advisor about establishing an estate plan.
When it comes to reviewing and updating their estate plans, Millionaire households could be seen as dropping the ball. Only 20 percent had updated their estate plan with in the past six months, while only 14 percent had reviewed it in the past year. Experts recommend that individuals review and/or revise their estate plans or wills before going on trip. They should do likewise in the event of any changes within the family. The passing of actor James Gandolfini provides a tragic object lesson. He suffered a fatal heart attack while visiting Rome.
Where there’s a way, there seems to be a will. A recent Spectrem’s Millionaire Corner study found that 87 percent of Millionaire households and 95 percent of high net worth households with a net worth of at least $5 million have a will. Significantly less (49 percent and 63 percent, respectively) have a trust. A trust is another key component of estate planning and wealth transfer. It can shelter investments from taxes and creditors, set aside funds for specific purposes such as college tuition and charity, or protect an estate from a spendthrift family member.
This last issue is one uppermost on the minds of wealthy households. Seven-in-ten said they intend to leave their assets to their children. Are they confident their children will be fiscally responsible?
Among nearly three-fourths of the wealthiest investors surveyed by Spectrem’s Millionaire Corner (those with a net worth of at least $25 million, not including primary residence), “raising financially responsible children ranks as a primary concern, second only to the well-being of their children or grandchildren. Two-thirds stated that they focused on “not allowing my wealth to be detrimental to the work ethic, educational or career plans of my children and/or grandchildren.”
But, conflictingly, there does not seem to be much urgency for this reason to introduce them to their financial advisor. While this attitude in most part stems from a perceived lack of interest in the family’s financial affairs, there was also the mindset that wealthy heads of household considered their children as yet too young to handle the information or were uncertain that their children were financially responsible enough to be informed about how much the family has.
Donald Liebenson writes news and features for Millionaire Corner. He has been published in the Chicago Tribune, The Chicago Sun-Times, The Los Angeles Times, Fiscal Times, Entertainment Weekly, Huffington Post, and other outlets. He has also served as a marketing writer for Chicago-based Questar Entertainment and distributor Baker & Taylor.
A graduate of the University of Southern California, he is married with a college-age son. He also writes extensively about entertainment.