US Investors Aren't Ready For Wealth Transfer – UBS Report

Amanda Cheesley Deputy Editor October 19, 2022

US Investors Aren't Ready For Wealth Transfer – UBS Report

Swiss bank UBS released its latest Investor Watch report this week – a survey of 4,500 high net worth individuals in 14 markets with at least $1 million in investible assets.

Wealth managers often talk about multi-trillion-dollar wealth transfer, but a report by UBS finds that many investors aren't prepared to take on the wealth and associated responsibilities. 

The scale of the problem is highlighted in how about $85 trillion, according to some estimates, is expected to pass to younger generations in the US alone over the next 20 years. 

According to the Swiss firm's report, more than one-quarter of US investors do not have a wealth transfer plan in place, and nearly half are not having important conversations to prepare their heirs. Eight in 10 investors said they want the inheritance process to go smoothly, with 76 per cent concerned about minimizing taxes and making sure that beneficiaries use their inheritance wisely.

Nevertheless, US investors are more prepared for the wealth transfer than any of the other markets surveyed, the report adds.

Speaking at a US-based media event this week, Sarah Salomon, head of family advisory and philanthropy services, said: “Many families are still not having critical conversations about inheritance. Investors are struggling to start the conversation because they don’t feel it’s a pressing issue. That’s what 56 per cent of benefactors reported. While things are better since eight to 10 years ago, there is still a lot of work to be done.”

Bill Shad, head of wealth planning strategists and trust consulting, added: “Tax considerations are super important.” 

“Seventy-six per cent of clients want assets to transfer in a tax-optimized way. There are many different federal states and local laws when transferring an estate and it becomes more complex when families are not located in the same state,” he said.

“Many families also don’t have a plan in place,” he added. “Families need to have at least two documents in place: a will and a power of attorney. We recommend clients also have a revokable trust in place. There are six or seven documents everyone should have in place and they need to determine who will be the executor of the will. There’s a lot of consequences without this,” he continued. 

At the heart of wealth managers' concerns is how to retain the business of the rising generation of wealth holders. It is a force that keeps advisors "awake at night" and a regular focus for reports and comments in the North American and wider wealth industry. The transfer issue explains enthusiasm for digitalization of the wealth management sector, ESG investing, attention on diversity, equity and inclusion, and talent management and training. 

Sudden wealth
Mike Chudd, private wealth advisor and managing director at UBS Wealth Management, based in Las Vegas, said: “Many of our clients come after the sale of a business so they might have sudden wealth.” 

“We spend time with our clients to manage the money and with the families to talk about the money with their kids. I still think the conversations are not being had about the value of money," he continued. 

The survey shows that 68 per cent of survey respondents are worried about their heirs using the money responsibly. Also, 50 per cent of investors surveyed globally have not shared where their assets are held, how they intend to divide them, or how much they are worth.

“Money means different things to different people. There are emotional ties attached and they need to make sure their heirs know what their money means to them. Having those conversations is really important,” Chudd said. 

“If your goal is to divide the money equally, that’s pretty smooth. But if you don’t, you could be penalizing the most successful one. The best way to deal with this is to have real conversations, otherwise it can be hurtful and can create sibling rivalry,” he added. 

Dividing wealth fairly
Families that include stepchildren face even greater struggles dividing assets, the report states. Eighty-seven per cent of blended families struggle with dividing assets fairly, compared with 62 per cent of non-blended families. 

Investors without children are more likely to leave a higher proportion of their wealth to charitable causes, compared with investors with children, the report adds. 

Business owners face additional complications when addressing the wealth transfer – particularly since the business is often the most valuable asset and difficult to pass on. Six in 10 business owners struggle to divide assets fairly. Around half hope to leave their business to family, but many have no estate plan and have not discussed their intentions with heirs or set expectations about business transition plans, the report says.

UBS surveyed 4,500 investors with at least $1 million in investible assets, split across 14 markets: Argentina, Brazil, mainland China, France, Germany, Hong Kong, Italy, Japan, Mexico, Singapore, Switzerland, the UAE, the UK, and the US. The research was conducted in April 2022.

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