The rich are like everybody else in America in at least one sense: They don't typically like to
A recent
Nearly eight in 10, or 79%, of surveyed investors who planned to pass assets down said they intended while still living to share information about their estate plans with heirs. But only 46% of heirs surveyed, or fewer than half, said they had actually known about their inheritance before the giver passed. Most heirs, or 54%, learned what they came into possession of only after the giver's death.
"You might be like, 'oh, when I get to 75, I'll tell everybody about this and we'll have a sit-down.' And you die at 73," Scott Smith, the director of advice relationships at Cerulli and a co-author of the Feb. 13 report, said in an interview.
"You didn't do what you wanted to do, because you were just delaying the conversation."
Other industry studies reinforce how common this lack of communication is. Last October, a
Research from the
An expensive mistake
Although some
Wealth segments surveyed in the report included the
Respondents reported having investable assets from over $100,000 to around $5 million, Smith said in an email. The report polled 1065 individuals with an online survey during September 2022 and was produced in partnership with MarketCast.
Unsurprisingly, the report found that a majority of all respondents, or 73%, were somewhat or very likely to pass on wealth to their heirs. Up to 83% of those older than age 70 said they intended to do so — evidence that passing on assets to family members was a top priority for rich clients, "although philanthropy does become increasingly motivating with higher asset tiers," the authors wrote.
Yet only 26% of the givers-to-be believed they had given their heirs information to be "very well-informed." Some 41% said they thought heirs were "somewhat informed." Having often spent a lifetime accumulating and guarding their wealth, many affluent people were not ready to share details about it with family members, fearing it would harm relationships.
"In addition to valuing their privacy and freedom to spend as they see fit, many bequestors prefer to reserve the right to alter their choices based on evolving circumstances and to not generate any ill will among those who end up receiving less," the report authors wrote.
Ironically, procrastination on these important conversations can generate the very friction that a grantor is hoping to avoid in the first place.
When families don't know what a bequeather's intentions were or why they created a plan the way it was, they can waste precious time — and dollars — fighting each other in court.
"By facilitating wealth transfer discussions, advisors not only potentially forge their own relationships with inheritors, but also hopefully reduce the incidence of bitter litigation among heirs," the report authors wrote.
The risk and opportunity for advisors
While financial advisors could be part of this solution, they are also part of the problem. Many in the industry are older, with the average age of an advisor being in the mid-50s, Smith said.
Earlier in their careers, many now-older advisors focused on the traditional activity of portfolio management for a client, but in the past decade the industry has shifted toward a holistic approach to planning with specialized services like estate planning, Smith said. Yet some advisors haven't caught up with the times.
In a 2021 nationwide study, Cerulli found that across financial services institutions — whether independent broker-dealers, banks, wirehouses, regional broker dealers, registered investment advisory firms, hybrid RIAs or insurance broker dealers — only 55% of advisors reported offering estate planning services, Smith said in an email. 31% offered trust services.
"If your advisor is still most comfortable talking about the portfolio, talking about the returns and just really focused on that type of thing, you're never going to get into this," Smith said. Starting intrafamily conversations not only helps an advisor preserve a client's wealth, it can also pave the way to meeting next-generation family members and building a relationship with them that can remain once heirs come into wealth.
Unfortunately, "creating your relationship with the next generation is always the 11th thing on an advisor's top 10 list," Smith said, adding that marketing and monitoring portfolios often crowd out that important relationship-building work.
He urged advisors to reach out to affluent clients and have a basic conversation beginning with how to plan wealth for their personal lifetime spending after retirement, including healthcare expenses. Next, advisors should help clients decide where remaining assets go, and then communicate the plan to heirs, updating things as needed — preferably, having all parties check back in at least once a year.
Finally, having a simple one or two-page document — not even a formal will — typed up in plain English, explaining what the assets are, who gets what and why, can be enormously helpful to smooth communication, Smith said.
'An expectation that's not stated'
Bill Ringham, the vice president and director of Private Wealth Strategies at RBC Wealth Management, said in an interview that his team prioritized estate planning conversations between clients and heirs among the high net worth and ultrahigh net worth individuals they serve.
He said he has seen heirs expressing confusion after a benefactor's passing, as they are only learning for the first time about the wealth intended for them and may not be clear on the giver's purpose.
"You might have individuals that aren't really comfortable with the wealth that they've just inherited, and it's a whole different mindset on what to do with that," Ringham said.
Sometimes, a parent, grandparent or other benefactor may have envisioned a recipient keeping the principal of an asset invested, and living off the interest it generates.
"Well, that's an expectation that's not stated. The next generation wouldn't understand that," Ringham said.
Advisors can bridge the gap between generations, he added, by nudging clients to protect their intended vision and communicate it proactively in meetings with their heirs and advisors.
"I've been in client meetings where they have kids that are in high school participate, to understand the concept of a family mission for that wealth," Ringham said. Other clients wait until the children are in their 20s.
Conversations can start with, "'we've created an estate plan,'" he said. "And 'we've created trusts for your benefit, for these particular reasons. Not because you're not financially savvy, but we just want to make sure that we're giving you the money over time.' And there are reasons to keep it in trust, such as creditor protection — if you're in your 20s and 30s, there's a higher probability of divorce."
"To me, the earlier that you can start those conversations with your next generation, the better."
