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Estate Planning for the Modern Family: It’s Complicated, and Advisors Fall Short

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The financial advice industry in the U.S. has some catching up to do.

UBS reported last week that 34% of high-net-worth and affluent investors lived in “modern” families” compared with 35% who live in traditional ones, but 70% of investors felt financial advice was designed only for traditional families. (The remaining 31% were single or were heterosexual couples without children.)

The report said modern families included blended ones involving children from a prior relationship, same-sex couples and homes shared by parents and adult children.

UBS surveyed 2,715 affluent and high-net-worth investors in mid-June, of whom 1,787 investors had at least $1 million in investable assets, including 422 with at least $5 million.

It said the rise of modern families was a growing trend as traditional families have become increasingly less common by generation, currently comprising 46% of the WWII/swing generation, 37% of baby boomers and 25% of millennials.

“It’s important for the financial industry to start addressing the complexities of modern families,” Paula Polito, a client strategy officer at UBS Wealth Management Americas, said in a statement.

“There is a real opportunity to respond to the rapidly and dramatically changing family dynamics in modern America.”

An Allianz study last year reported that the traditional model of a married father and mother and one or more children represented only 20% of American families.

Blending Gets Complicated

Blended families represented 14% of the survey population, and experienced heightened financial and emotional challenges relative to traditional families.

The survey found that 55% of blended families felt their lives were more complicated than those of traditional families. This was true with regard to finances, and especially retirement planning.

Forty-four percent said they had underestimated how much it would cost to support more children.

As well, emotional strains came into play: 63% acknowledged that their spouse’s children for whom they had taken on responsibility did not fully accept them.

This, in turn, made inheritance planning more difficult. Sixty-seven percent said they did not know how they would divide up their wealth, physical assets or business interests, compared with 50% of traditional families who said this.

According to the survey, blended families were less likely than traditional ones to openly discuss wealth transfer, and were less confident that what they eventually decided would satisfy their heirs.

Thirty-one percent of investors in blended families reported conflicts among potential heirs, compared with just 12% in traditional families.

Same-Sex Couples

Half of same-sex couples in the survey felt the Supreme Court’s June decision guaranteeing them the right to marry across the country would positively affect their personal life, especially with regard to the extension of certain health and retirement benefits, and 42% believed it would benefit their career.

However, 60% bemoaned inadequate financial guidance for families like theirs. Seventy-two percent were actively seeking guidance to understand how the legalization of same-sex marriage would affect their benefits.

“Same-sex couples are attempting to translate what the ruling really means for them, their benefits and their financial situation, making financial planning that much more critical,” Sameer Aurora, head of client strategy for UBS Wealth Management Americas, said in the statement.

Financial planning for same-sex couples becomes increasingly complicated in terms of estate planning, the survey found. Twenty-five percent of respondents did not feel accepted by their parents, and believed their inheritance was, or could, be affected by their sexual orientation.

Moreover, their own legacy planning was often fraught with conflict among potential heirs because few have children of their own.

Multigenerational Mix

More adult children and aging parents are sharing homes, challenging conventional lifestyles and adding pressure to loved ones to support them financially, UBS said.

The survey found that for families with adult children still in the home, 53% worried about maintaining their current financial situation.

They were also less confident about reaching financial objectives than those without adult children at home, and more worried about affording health care in their old age.

Families living with aging parents had a harder time balancing the financial needs of everyone in their family and being able to retire on their own timeline.

Fifty-six percent said that retirement planning was at least “somewhat complicated” for them, compared with 42% of families not living with an aging parent.

— Check out What Advisors Should Know About 80% of American Families on ThinkAdvisor.