Many wealthy boomers not prepared to leave it to their kids

October 14, 2011
| By Pete Daly |
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Based on a survey of 457 baby boomers with at least $3 million in assets, Bank of America concludes that only about half of "very wealthy" boomers seem concerned about a carefully planned transfer of their wealth to their children.

"Insights on Wealth and Worth" is a report based on a survey commissioned last winter by U.S. Trust – Bank of America Private Wealth Management. It claims that only 49 percent of "very wealthy parents" in the baby boomer generation believe it is important to leave a financial inheritance to the next generation.

"Given their wealth, surprisingly few of those surveyed have well-developed plans to preserve and pass on their assets to either their children or charity, raising questions about the planning process itself and what will become of what has been expected to be history's largest transfer of wealth," according to a news release from U.S. Trust at Bank of America.

"I think the study finds that family is definitely important to these individuals but that planning is not, and that by not planning, they could actually be doing unforeseen harm to their family," said Michelle Hoexum, a vice president at U.S. Trust and a private client advisor in Grand Rapids.

Hoexum, who said U.S. Trust is the boutique wealth management group within Bank of America, indicated there is a difference between U.S. Trust's existing clients — especially those in West Michigan — and many who were surveyed. The survey was not restricted to U.S. Trust clients but intended to represent baby boomers from across the U.S. with $3 million or more in "investable" assets.

"The clients that we do talk to on a regular basis, we feel that they have a higher level of comfort (in their estate planning) compared to what I've read in the study," said Hoexum.

A U.S. Trust press release about the survey states that 75 percent of those surveyed said their wealth is the result of their own focus and hard work. Almost half said they would continue working in retirement years, and slightly over half said they would volunteer in their community.

"Having worked hard for financial security and freedom, the survey respondents now want to be able to travel and focus on relationships, placing a higher level of importance on these goals than on leaving an inheritance to their children or making a positive impact on society," states the report.

Approximately four in 10 wealthy Americans have never sought professional advice about legacy planning or philanthropic strategies, according to U.S. Trust.

"There is an expectation about the wealthy that they have an implicit, sacred responsibility to pass down their fortune to the next generation, and this understanding has shaped expectations about the coming wave of intergenerational wealth transfer," said Sallie Krawcheck, president of Bank of America Global Wealth and Investment Management.

"Our research, however, uncovered a distinct generational mindset that reflects changing views about what retirement means and an evolving sense of what one generation owes the next."

U.S. Trust said it found that many of the high-net-worth individuals surveyed have only basic financial and estate plans "that may have sufficed at some point but do not reflect the current complexity of their financial lives."

Most of the wealthy individual estate plans contain basic elements such as a will and beneficiary designations for insurance and retirement savings, but trusts are underutilized, despite their value in preserving family wealth. Nearly half of wealthy individuals surveyed have not established a revocable trust, and 72 percent have no irrevocable trust, either. Three-quarters do not have a life insurance trust, and 88 percent have not established a charitable trust.

Forty-three percent do not have a financial plan that factors in the impact of long-term care and/or end-of-life health care costs.

Fifty-six percent have not documented personal property and assets, and 51 percent have not documented instructions about the distribution of personal possessions among heirs.

"We have found a significant dichotomy between clients we talk with who tell us that intergenerational wealth transfer is the single most important issue on their minds, and a large segment of high-net-worth population we surveyed who are not taking action and therefore leaving the legacy of their life's work to chance," said U.S. Trust President Keith Banks.

U.S. Trust found that many children of these first-generation wealthy families are not receiving the guidance and support they need to handle inherited wealth. Other survey results include:

  • Only 34 percent strongly agree that their children will be able to handle any inheritance they plan to leave them.

  • About 45 percent do not believe their children will reach a level of financial maturity to handle their inheritance until they are at least 35 years old.

  • Fifty-two percent of parents surveyed have not fully disclosed their wealth to their children, and 15 percent have disclosed nothing about the family wealth.

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