COMMENTARY | COLUMNISTS | PEGGY EDDY

Insights on wealth and worth

Since 1993, U.S. Trust has periodically surveyed high net worth individuals in the United States. Their latest survey, the U.S. Trust 2012 Insights on Wealth and Worth, interviewed 642 high net worth people nationwide.

Exclusive of their homes, all respondents had a minimum of $3 million in investable assets with 37 percent owning investable assets between $3 million and $5 million, 31 percent had investable assets between $5 million and $10 million and 32 percent had investable assets in excess of $10 million.

For the first time since they began this survey, U.S. Trust set out to look at the differences and similarities among three generations of wealth in the United States.

As their website says, “U.S. Trust's Insights on Wealth and Worth survey is one of the most in-depth studies of its kind to explore both the rational and emotional perspectives of three generations of high net worth and ultra high net worth Americans.”

The generations represented in this survey were identified as:

* The younger generation of wealth creators (ages 18-46, 11 percent of those surveyed);

* The Baby Boomer generation (ages 47-66, 56 percent of the respondents);

* The Older Generation, which preceded the Baby Boomers (over 67 – 33 percent of the respondents).

Of those surveyed, 78 percent earned their wealth through work and investments and 22 percent inherited their wealth. Gender wise, 38 percent of those surveyed were women and 62 percent were men; 507 have children, including 16 percent with children age 21 or younger and 84 percent with grown children age 22 or older; finally, of those surveyed, 128 are business owners or work in a family business, 148 work full-time, 78 work part-time or aren’t working and 290 are retired.

The survey covered topics such as the influence, roles and responsibilities of wealth; putting wealth to work for the family in areas such as long-term care, estate planning, wealth transfer and financial empowerment; protecting and providing family security and privacy; how to grow and preserve wealth; and the use of financial advisors.

The key finding of the survey validated what I have observed as a CFP from an anecdotal viewpoint over the past five to 10 years: there are distinct, and perhaps surprising, generational differences in the way wealthy individuals are preparing for financial uncertainty, the looming health care crisis and dual financial responsibilities for both children and to parents.

The survey findings seem to echo the joke that asks, “Why are grandchildren and grandparents best of friends?” Answer: “Because they have a common enemy.”

The survey indicates that the younger generation is more aligned with the 67 and over generation than the Baby Boomers on the importance of intergenerational wealth transfer. In the younger generation 76 percent of those 18 to 46 and 73 percent of those over 67 said it is important to leave a financial inheritance to their children. According to these two groups, the primary reasons for leaving an inheritance are to preserve the continuity of family wealth and to influence children’s lives after the “elders” pass away.

In contrast, only about half of the Baby Boomers think it’s important to leave a financial legacy to their children. Moreover, of those who don’t think it is important, one in three said they would rather leave their wealth to charity than to their children! Finally, more than one quarter of the Baby Boomers are motivated to leave an inheritance as a tax strategy.

Among those who don’t think leaving an inheritance to children is an important financial goal, the primary reasons are a belief that each generation should earn their own way and that it’s better to invest in the next generation while they are growing up, versus leaving money at death.

Of the parents surveyed, 60 percent are not confident that their children will be well-prepared to handle an inheritance. Four out of ten parents agree that their children would benefit from talking with a financial professional. This finding is not surprising; other surveys of high net worth individuals report that the lack of financial training among heirs is among the top concerns of wealthy parents. The U.S. Trust survey found that over one-quarter of the parents think their children won’t be mature enough to handle their wealth until they are 40 or older; the younger parents think their children will be ready to handle wealth at an earlier age. Therefore, making sure future generations are “heir-conditioned” should be a major goal of most parents and grandparents.

On the topic of discussing wealth with their children, wealthy parents are most concerned that doing so would negatively impact their children’s work ethic. In addition, nearly half of those over 67 said, “I was taught never to discuss wealth,” thus re-confirming that talking about money remains a taboo topic in our society.

For estate planning attorneys who may be reading this, the survey found that only about half of the 642 surveyed have a revocable trust and less than 25 percent have an irrevocable trust. The major reasons given for not having a trust were:

* “I don’t need a trust; my wishes are spelled out in my will” (43 percent);

* “I haven’t gotten around to it” (31 percent);

* “I don’t know the benefits” (17 percent);

* “I don’t have enough money” (17 percent);

* “Trusts are too complicated and expensive.”

And, my favorite one:

* “My advisor has never discussed it with me.”

An additional survey finding was that the younger generation is seeking professional advice and relevant solutions at an earlier age to achieve their financial goals. This may be due to the fact that this younger generation witnessed their parents’ wealth decline during the dot-com craze and experienced their parents’ and their own wealth evaporate during the last “Great Recession."

These two events are most likely still seared in their memories, causing concern about their own financial security.

The survey results summarized above should be catalyst enough for financial advisors and estate planning attorneys to be more aware of these generational differences and focus on assisting their clients in each age group with their topmost concerns.

Keith Banks, President of U.S. Trust says it best:

"Our survey points to a shift in generational behavior and outlook, most likely shaped by personal experience and societal responses to economic realities. Understanding the different perspectives from which each generation approaches the management of their wealth is vital for advisors because that insight positions them to better serve their high net worth clients and their families."

Eddy, CFP, is president of San Diego-based Creative Capital Management Inc. and co-founder of the Family Business Forum at USD. She can be reached at peggy.eddy@sddt.com. Comments may be published as Letters to the Editor.

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