Study Finds Parents Worry a Large Inheritance Can Do More Harm Than Good
April 30 2015 - 9:00AM
Business Wire
Merrill Lynch Private Banking and Investment
Group Explores When, Why and How the Wealthy Pass on Assets and How
Much Is Too Much to Give
The great transfer of intergenerational wealth now underway
raises concerns in some wealthy families that it could do more harm
than good for the next generation, according to a new report
published today by Merrill Lynch’s Private Banking and Investment
Group.
The report, “How Much Should I Give to My Family? On the risks
and rewards of giving,” is based on findings of a nationwide survey
of 206 high net worth parents and is the third in a series of
papers by the firm on family wealth sustainability.
The survey found that a majority (91 percent) of people plan to
leave the lion’s share of their wealth to family members, motivated
by a desire to positively influence the lives of loved ones. Yet
the results indicate that many see significant risk in passing on
wealth without context, conversation, guidance or accountability.
Parents surveyed note that fear of disrupting family harmony and a
lack of clarity rank high on the list of reasons not to discuss
giving.
Key findings include:
- Nearly half (46 percent) of high net
worth individuals are concerned about giving too much money, and
only about half are confident that the distribution of their assets
will have the intended impact. The greater their assets, the
greater the level of concern.
- When asked at what point an inheritance
or gift is considered too much, 46 percent said “when the money
creates a disincentive to achieve one’s full potential.” Some 28
percent said it is when the recipient can indulge in a perpetual
life of leisure.
- More than half (52 percent) of all
respondents and 42 percent of those with more than $10 million in
assets intend for virtually all of their remaining assets to be
distributed after they are gone, with their wishes outlined in a
will or trust and estate plan.
- While more than six in 10 (63 percent)
say they have documented or defined plans to pass financial assets
to others, only 29 percent have had a conversation with the
recipients. Far fewer have articulated their intended purpose via
letter (16 percent), a values statement (3 percent), or video (2
percent).
How much is too much?
The appropriate amount of money to give and the best model for
giving vary depending on the recipient, according to the report.
While many wealth creators want to be fair and equitable in the
distribution of their assets, their concern about giving too much
is often associated with how it might affect a specific person of
group of people, such as a child with special needs or a family
member struggling with addictions.
- 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 percent say
they want to be fair to everyone.
- Two-thirds (66 percent) of survey
respondents show at least some degree of concern about the negative
impact 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,” said Michael Liersch,
head of behavioral finance and goals-based development at Merrill
Lynch Wealth Management. “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 the framework for a successful, personalized
giving model and five factors of decision-making about how much and
to whom to give. In addition, the paper takes an in-depth look at
the financial and emotional implications of gifting assets during
one’s lifetime or after they are gone.
The report suggests that the idea of giving too much is of
particular concern for people who have 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,” said Stacy Allred, a
managing director and wealth strategist in the Merrill Lynch
Private Banking and Investment Group and leader of Merrill Lynch’s
Center for Family Wealth Dynamics and Governance™. “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:
- The top three events that trigger a
dialogue about wealth transfer are: a health issue (56 percent);
death of a family member or friend (43 percent); or an initial
discussion with a professional advisor (34 percent).
- The primary reasons for not talking
with family about giving are: (1) simply not thinking about it, and
(2) concern about disrupting family harmony.
Insight from the research and discussions with clients indicate
that there is a higher degree of confidence about giving decisions
by people who involve a trusted advisor in formally structuring
giving strategies, with guidelines and, in some cases, restrictions
and accountability.
A full copy of the report and detailed research findings are
available at www.pbig.ml.com/howmuch, along with the entire Merrill
Lynch Private Banking and Investment Group series on sustaining
wealth.
MethodologyThe nationwide survey of 206 U.S. consumers with $5
million or more in investable assets was conducted in October 2014
by Phoenix Marketing International, an independent market research
firm, on behalf of Merrill Lynch’s Private Banking and Investment
Group. All data were tested for statistical significance at a 95
percent confidence level.
Merrill Lynch Global Wealth ManagementMerrill Lynch Global
Wealth Management is a leading provider of comprehensive wealth
management and investment services for individuals and businesses
globally. With 14,183 Financial Advisors and over $2 trillion in
client balances as of March 31, 2015, it is among the largest
businesses of its kind in the world. Merrill Lynch Global Wealth
Management specializes in goals-based wealth management, including
planning for retirement, education, legacy, and other life goals
through investment, cash and credit management. Within Merrill
Lynch Global Wealth Management, the Private Banking and Investment
Group focuses on the unique and personalized needs of wealthy
individuals, families and their businesses. These clients are
served by more than 150 highly specialized Private Wealth Advisor
teams, along with experts in areas such as investment management,
concentrated stock management and intergenerational wealth transfer
strategies. Merrill Lynch Global Wealth Management is part of Bank
of America Corporation.
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