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HNWs Worry About Unintended Consequences of a Big Inheritance

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The vast majority of wealthy people plan to transfer most of their wealth to family members, but many worry about doing so absent context, conversation, guidance or accountability, according to a report published Thursday by Merrill Lynch’s Private Banking and Investment Group.

The report was based on a nationwide survey of 206 U.S. consumers with $5 million or more in investable assets conducted by Phoenix Marketing International in October.

The survey found that 46% of high-net-worth individuals were concerned about giving too much money, and only about half were confident that the distribution of their assets would have the intended effect.

The greater respondents’ assets, the greater was their reported the level of concern.

Asked when they considered an inheritance or gift too much, 46% of respondents said at the point it acted as a disincentive for the recipient to achieve full potential, and 28% said when it enabled the recipient to indulge in a perpetual life of leisure.

The report suggested that concerns about giving too much particularly worried people who had not clearly identified the purpose of their wealth or defined their values and intent for passing it on.

“Many wealthy families shy away from discussions about wealth, and their avoidance can impede the very real and important process of defining priorities for wealth and giving,” Stacy Allred, leader of Merrill Lynch’s Center for Family Wealth Dynamics and Governance, said in a statement.

“Unfortunately, discussions around wealth tend to occur only at big life junctures, such as an illness or death, when it is often too late to influence the way wealth is distributed, perceptions of the gift by its recipients or how they use it.”

The survey found that the main events that triggered a dialogue about wealth transfer were a health issue, the death of a family member or friend or an initial discussion with a professional advisor.

The primary reasons for not talking with family about giving were simply not thinking about it, and concern about disrupting family harmony.

According to the survey, 52% of all respondents and 42% of those with more than $10 million in assets intended for virtually all of their remaining assets to be distributed after death, with their wishes outlined in a will or trust and estate plan.

Sixty-three percent of survey respondents said they had documented or defined plans to pass financial assets to others, but only 29% had had a conversation with the recipients, and just 16% had articulated their intended purpose via letter, 3% via a values statement and 2% via a video.

Too Much?

The report said that although many wealth creators wanted the distribution of their assets to be fair and equitable, their concern about giving too much was frequently associated with how it might affect a specific person, such as a child with special needs.

One-quarter of respondents consider equity and/or fairness the top consideration when deciding how much to distribute assets among their heirs — yet nearly 40% say they want to be fair to everyone. Two-thirds of respondents expressed at least some degree of concern about the negative effect of gifted assets on a particular individual or group of individuals.

“Too often, people think only about dollars amounts, not impact, when deciding how much is too much to give,” Michael Liersch, head of behavioral finance and goals-based development at Merrill Lynch Wealth Management, said in the statement.

“There is no silver bullet answer or one-size-fits-all approach to gifting assets. The process of meaningful, intentional giving, whether to family, friends or philanthropy, should be highly personalized. It requires honesty, humility and a willingness to face this all-important topic head on.”

The paper outlines a framework for a giving model and discusses five factors families may consider in deciding how much and to whom to give:

  • Make values explicit
  • Determine recipients’ respect for wealth
  • Assess emotional maturity
  • Define fairness for your family
  • Account for passion and purpose