Majority of inheritors do not significantly change lifestyles after windfall, but wealth holder fears are not unfounded
Wealth Transfer Study Executive Summary
The survey also confirmed that both “wealth holders” and “inheritors” feel a deep sense of obligation to protect the family’s wealth for future generations. Each group believes wealth is not a gift to be squandered, but a vehicle to move the family forward, and help others through philanthropy.
“It’s natural for leaders of multigenerational families to be protective of the younger generations. They simply want what’s best for their children and grandchildren,” said Tom Rogerson, senior family wealth strategist at Wilmington Trust. “Preserving family wealth across generations requires making sure the next generation is ready to receive the money. A strong family culture that promotes education and open communication is vital for success.
“Additionally successful families work to strike the right balance in empowering their heirs to pursue their life goals, while preparing them for the responsibility of managing the family wealth.”
The 57 research participants belong to families with a net worth of at least $20 million, including 72 percent with a family net worth in excess of $50 million. The majority of inheritors in the study—those who have received less than half of their expected inheritance—are over 40 years of age, yet half of them have a limited understanding about the details of their inheritance including amount, timeframe, and in what forms it would be received, such as a lump sum, a trust, or mixture of both.
INHERITANCE CONCERNS AND OUTCOMES
Among wealth holders, 67 percent are apprehensive about sharing inheritance details. Only 10 percent provided complete information about the amount of inheritance to their heirs. The top five reasons why inheritance information is withheld are:
- Concerns about demotivating or disempowering heirs—29%
- Haven’t decided what assets to leave heirs or how to do it—19%
- Waiting for heirs to get older—14%
- Fear heirs will rely on wealth that might not materialize—10%
- It’s not the heirs’ business—5%
- 45% plan to keep working at their present job
- 11% plan to continue working, but at a reduced level
- 7% want to keep working full time, but switch to a job they want to do
- 4% plan to focus full time on philanthropic causes
Wealth holders and inheritors share complex concerns regarding their wealth. The primary worry of both groups is friends and acquaintances discovering the extent of their wealth (47%). Following closely at 44 percent is concern about becoming a target of predators or scams. The third greatest fear is being judged by peers solely based on their wealth (42%).
Additionally, 25 percent of participants worried about raising well-adjusted children. Only 21 percent said they feared losing all their wealth.
The findings suggest the need for wealthy families to proactively manage complex issues such as reputation, privacy, and security. Wealth management professionals can help families navigate these financial and social issues.
Wealth holders in the study stated they are communicating more with their inheritors than their benefactors did with them. Both wealth holders and inheritors assign high priority to financial education, as well as learning how to best manage family dynamics and decision making.
The two groups also agree on most educational topics, however, they differ over how they want wealth education delivered. Slightly more than half (53%) of wealth holders prefer in-person educational family meetings. Conversely, only a quarter of inheritors value in-person meetings. Additionally, only a third of wealth holders desire informal meetings with their wealth advisors, while 52 percent of inheritors do.
Based on these findings, it’s clear that successful families need education to be delivered via multiple and different channels, which requires reliance on experienced wealth advisors who can provide sophisticated and customized programs that deliver both standard and bespoke education. Standard education can cover topics relevant across generations, such as the basics of a trust and sustainable spending. Customized education programs deliver learning designed for a family’s specific needs, such as a managing a business or foundation, as well as family culture and values.
The research reinforces what other studies have confirmed regarding the importance of teaching children the value of money at an early age. Introducing simple financial lessons, such as managing a savings account and involving children in family philanthropic activities, instills good financial habits for a lifetime.
TRUSTED ADVISORS A TOP PRIORITY
The research also found that affluent families place high importance and responsibility on the advisors they choose. Wealth holders and inheritors said that hiring a “trustworthy and responsive advisor” is their top priority (93%).
In addition to wanting an advisor they trust, wealthy families also want sophisticated expertise—at a reasonable cost. The next three highest priorities in advisor selection are tax mitigation expertise (82%), competitive fees (75%), and recordkeeping (75%).
Not surprisingly, wealthy families also value advisors with expertise in trust and estate planning (74%), as well as the ability to assist with family decision making and governance (65%).
“Successful families should consider hiring wealth managers who are fiduciaries,” said Bill LaFond, president of Wilmington Trust’s Family Wealth Division. “High-net-worth families need advisors with integrity, in addition to the requisite experience, knowledge, and resources. Hiring the right advisor is key to navigating a family’s unique financial environment to create a financial legacy that can endure for future generations.”
For more information, the executive summary of the research is available online: www.wilmingtontrust.com/repositories/wtc_sitecontent/PDF/Wealth-Transfer-Research-Executive-Summary.pdf.