Trust Estate
Bequestors Need To Prepare Inheritors More Thoroughly – Study
The study, while not specifically about HNW and ultra-HNW clients, throws light on a major issue – the preparation, or lack of it, of inheritors of future wealth and why this matters in these litigious times.
Slightly more than a quarter of people who intend to bequeath wealth to others think they’ve provided enough information to their heirs to be deemed “very well informed,” according to a report. With trillions of dollars due to change hands, ensuring that preparations are in place is essential to thwart potentially costly ligitation.
This comes at a time when NextGen wealth transfer is a frequently talked-about topic in the North American sector, a survey by Cerulli Associates found. The findings are outlined in The Cerulli Edge - US Retail Investor Edition, 1Q 2023 Issue.
Although the information applies to the retail sector – high net worth individuals might be better prepared for transfer – such findings should also be instructive for private client advisors working in the wealth management space. Cerulli said that total bequests are projected to exceed $84 trillion among US residents by 2045.
After years of guarding this information, many investors are reluctant to share details even with the heirs to whom they intend to pass their wealth, the survey found. Only 26 per cent of future bequestors think they have provided enough information to their heirs for them to be deemed “very well informed,” with an additional 41 per cent rising to the level of “somewhat informed.”
“Unless these conversations are ongoing or well documented, retention rates of nuanced details of complex subjects discussed only once are quite low,” Scott Smith, director at Cerulli, said. “Thoroughly sharing this information and supporting rationale with intended recipients and other stakeholders may create discomfort in the short term but is an important step in minimizing costly and divisive legal battles in the future.”
Understanding how and where future bequests are held is another key element of wealth transfer. Management by a financial advisor (34 per cent) and held in a trust (31 per cent) are two of the most common disposition scenarios. In most cases, these are intentional choices made by bequestors because they are confident of these means. Sharing the basis and explanation of these choices with inheritors can be a significant factor in helping foster these relationships through the next generations and offering a degree of prudent advice can facilitate sustained familial wealth, the Cerulli report said.
“With harmonious wealth transfer being a primary objective among affluent clients, it is incumbent upon advice providers to encourage or even facilitate these discussions to take place as early as possible,” Smith said. “By doing so, they not only potentially forge their own relationships with inheritors, but also hopefully reduce the incidence of bitter litigation among heirs.”
