Many high net worth business owners are so "caught up" in their efforts to create jobs and opportunities for others that they are at risk of jeopardizing their own employees as well as their families' financial security, according to findings from a recent report.

US Trust's 2012 Insights on Wealth and Worth survey revealed that nearly three-quarters (72 per cent) of HNW business owners consider themselves responsible for creating jobs, while 76 per cent feel an obligation to keep people employed - even if it means lower profits.

Meanwhile, two-thirds (66 per cent) of business owners - twice as many as non-business owners - said they feel empowered to make a difference through their ability to create opportunities for others. For example, about half (55 per cent) of business owners have started, acquired and/or made "substantial investments" to expand their businesses since 2008, the survey found.

Moreover, only about half (55 per cent) of business owners said they are holding back because of economic and regulatory concerns, with fewer still citing access to credit (28 per cent) or availability of start-up funding (15 per cent).

"By not anticipating risks or a change in circumstances, they unintentionally may put the financial security of their families and employees at risk, despite their best intentions," warns Keith Banks, president of US Trust.

Lack of preparation

For the 2012 study, US Trust surveyed 600 HNW business owners with at least $3 million in investable assets; nearly two-thirds have assets greater than $5 million.

The findings point to a worrying lack of financial preparation, with 55 per cent admitting that they don't have a formal succession plan for their business, including 43 per cent of those over the age of 67. "In fact, they are slightly less likely than non-business owners to have the basics such as a will, healthcare proxy or a named durable power of attorney," the firm said.

At the same time, 77 per cent said it is important that they leave an inheritance to their children or grandchildren, whilst 46 per cent already have transferred assets to a trust established for future generations.

However, almost half (48 per cent) are not using any type of trust to protect or transfer their financial assets to heirs, their business or charitable beneficiaries. The most common reason for this, as cited by 42 per cent, is that they "just haven’t gotten around to it," while a third say they don't see the need for it because a will is sufficient.  

Meanwhile, according to over half (54 per cent) of business owners, the most important goal of an estate plan is to minimize estate taxes. Yet the findings suggest that fewer than half have taken, or plan to take, steps to reduce the size of their taxable estate in advance of potential tax law changes.

"In families that rely on a business and the business owner’s role in the business, estate planning, business succession planning and financial planning require special considerations," US Trust said.

Moreover, added Banks, the business is often the primary source of wealth and income for the family, and financial responsibilities and risks often extend "well beyond" immediate family members: "The modern American family comes in all shapes and sizes, and managing the dynamics of extended, blended and single-parent families or any special health, financial and emotional circumstances can have a big impact on planning needs."