“With about $70 trillion in wealth transfers expected over the next 22 years, the conversations clients have with advisors about their inheritance plans show a shocking lack of timeliness and transparency, according to a survey by Cerulli Associates.”
A study by the financial services research firm reveals just how big a problem family secrets can be, as reported in Financial Advisor’s recent article “Family Wealth Transfers Undermined by Secrecy.” Most asset holders plan to share their wishes and intentions with family members before they die. However, the research reveals only about half actually do so.
The survey looked at two demographics: affluent investors with more than $250,000 in investable assets and near affluent, investors under age 45 with earnings more than $125,000. Responses were weighted to reflect the distribution of households within these segments, which are wealthier and older than the average U.S. population.
Estate planning attorneys understand the complexity of multi-generational families and are experienced with nuances in family dynamics and the hesitancy of families to share their financial details. After a lifetime of not discussing wealth, it can be difficult to know where to begin.
When asked how well informed heirs are about their parent’s desires and plans for bequests, only 26% said their heirs were very well informed. The greater the wealth, the more likely conversations had taken place. About a third of respondents with more than $1 million in investable assets said heirs knew of their plans.
Those with less than $250,000 to pass on were not sure if heirs knew their wishes or, worse, admitted their heirs had absolutely no idea.
Although skipping generations offers tax advantages, most heirs receive inheritances directly from a parent upon their death. Having an estate plan in order, including wills and trusts agreements, ensures an orderly transfer of wealth.
A key component of successful wealth transfer is communication. However, this survey found a full 25% of respondents never intend to share information about their assets while they are living. This prevents comprehensive planning from taking place, since a number of aspects of wealth planning require active planning and other people to be involved during the parent’s lifetime.
Planning for incapacity requires the involvement of siblings, spouses, and heirs. Advanced directives, power of attorney, health care power of attorney and related documents need to be shared with family members, so they can act on the parent’s behalf. Lacking these documents creates emotional and financial burdens on loved ones.
Because healthcare costs later in life can quickly erode assets, talk with your estate planning attorney about health care and Medicaid planning for long term care to help manage expenses and preserve as much wealth as possible.
Reference: Financial Advisor (Feb. 22, 2023) “Family Wealth Transfers Undermined by Secrecy”
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