Inheritances in wealthy families are almost always spoken about as a positive thing for the next generation, but new survey data published by Bank of America Private Bank details some challenging aspects to consider.
For example, 1 in 5 respondents report having experienced emotional strain over an inheritance, including 54% of younger respondents. At the same time, 52% of wealthy Americans do not have the three basic elements of an estate plan — a will, advanced health care directive and durable power of attorney.
Just as concerning, according to Jen Galvagna, the head of trust, estate and tax at Bank of America Private Bank, is that 48% of respondents with a plan in place have not considered hard assets, including real estate, art and collectibles and other tangible assets, in their estate plans.
"The lack of planning is stark," Galvagna said in an interview previewing the survey results. "Even in this wealthy survey demographic where people have over $3 million to invest and manage, roughly half of them don't have a comprehensive plan. You might think that wealthier people would have higher planning prevalence, but they actually don't."
Families with substantial means have always needed planning around inheritance and estate issues, according to Galvagna, but this need might be greater today than ever before. Why? Families at the top of the income distribution control even more wealth at the same time that their structures have grown more complex.
"It is so common now that we see family complexity — blended marriages, kids with differing wants and needs, divorces and more," Galvagna said. "The importance of planning for all these scenarios is critical. If those scenarios aren't considered, and if an estate plan isn't thoughtfully put together, it can create a lot of conflict and emotional strain."
Pitfalls to Avoid
Despite the importance placed on sharing and sustaining family money, gaps in planning, communication and guidance could derail these goals, Galvagna warned.
Beyond the concerning stats already cited, the survey shows that 56% of respondents have established a trust, yet only 27% say they understand trusts and their benefits "very well." Issues such as incorrect asset titling and poorly structured documents are prevalent, Galvagna said.
One positive is that 69% of parents of adult children report having spoken with their children about family wealth plans. They start those conversations only after their children have reached the age of 31, on average.
"It's important to start these conversations early," Galvagna said. "Also, even if you have a great estate plan in place and you're happy with it, you need to revisit it regularly over time and consider how circumstances might have changed."
This work is generally done best in coordination with an experienced advisor and other legal and technical resources, Galvagna said, helping clients set up the plan and its commensurate documents.
"Something that backs this up in the data is that, when an advisor is involved with a high-net-worth family, the client is 20% more likely to have a trust in place to help manage wealth transfers and mitigate taxes," Galvagna said. "These resources can also help ensure your assets are titled correctly and that wealth will truly flow like you expect it to."
