New research shows most wealth holders leaving too much unsaid when it comes to spending and handing down fortunes
Estate planning is notoriously difficult because of the sensitive nature of the conversation topics, including who should get how much and what it should be spent on. And that difficulty could be leading to a crisis of silence among high-net-worth (HNW) families.
That was the key message of a report titled How do families make effective wealth decisions? Prepared by Merrill Private Wealth Management. In a survey of more than 650 high-net-worth people across the US, it found that 64% of wealth holders have never discussed how or why they intend to pass on their assets with family members. Nearly half of the survey respondents (48%) said they plan to share the information eventually, but 10% said they would never share details of their estate plan.
When it comes to existing commitments, only 33% said they’ve informed their family of lifetime gifts already made or committed to, including assets in trusts, funding of education, a down payment on a first house, or another purpose. More critically, 72% said they’ve not discussed their philanthropic commitments.
There also seems to be some dissonance at play when it comes to values and principles. When asked what they consider to be the most important idea to communicate in family wealth discussions, the largest proportion of respondents said it was to be a good steward and handle family money wisely. However, only 46% of participants have discussed family values and operating principles with heirs.
The poll also found that nearly seven tenths (69%) of wealth holders plan to equally distribute their assets among heirs, while the rest are basing their allocation decisions on specific criteria such as merit for individual contributions (11%) or need (8%). And while 22% plan to openly divulge details of their estate plan to the whole family, 17% said they would only let each member know information that applies to them specifically.
What keeps people from initiating conversations about wealth? One reason is that the reasonable desire to be cautious about life-changing monetary decisions can be warped into an irrational habit of avoiding the subject altogether. Family dynamics, as well as the perception of a long timeline for decision-making, also get in the way.
“The best form of financial parenting and a big part of improving the outcome of decisions involves putting more care into the decision-making process itself,” said Matthew Wesley, director, Merrill Center for Family Wealth.
For wealth holders to communicate successfully with HNW family members about their household’s fortunes, the report recommended a “dimmer switch” approach through a series of thoughtful, educational conversations:
- First, explain the mindset behind financial decisions, including the purpose of wealth, core family values and operating principles, healthy ideas about money, and the importance of stewardship as well as skills to support it;
- Second, get into structural details — the jargon of gift and estate-plan elements as well as who the professionals the family works with are — to equip family members with the skills needed to carry on their estate goals; and
- When family members have the required maturity and understanding of the constituent elements of the estate plan, pull back the curtain and show the specific numbers behind the entire plan.