Family Business Matters


July 20, 2011


It’s not just the money

During the first quarter of 2011, U.S. Trust commissioned Phoenix Marketing International to conduct an online survey of approximately 457 Americans owning $3 million or more of investable assets, including retirement assets, but not their primary residences.

The objective of this survey was to explore the emotional and rational aspects of having a high net worth in the United States. The survey, titled “2011 U.S. Trust Insights on Wealth and Worth,” explored areas such as attitudes about wealth, the use of wealth and worth, estate planning, financial planning, and the intergenerational transfer of wealth. In addition, respondents were surveyed about their attitudes regarding tax policy, their investment outlook and their relationships with financial advisers.

The survey summary reported that 75 percent of the 457 people surveyed accumulated their wealth on their own. Eighty-four percent of these respondents believe their wealth is a byproduct of their own hard work and focus, and nearly 50 percent believe that intellect and their personal values played a major role in accumulating money. Interestingly, only 27 percent had wealth as a result of an inheritance, but the majority of those respondents also attributed their inherited wealth to focus and hard work.

Of those surveyed, 47 percent reported that they have experienced somewhat negative consequences that they associate with their wealth accumulation, including not taking time off, being too involved with work to spend time with their family, letting their personal health suffer and mishandling personal relationships.

This is not to say that wealth accumulation is the result of workaholism or automatically results in divorce. However, it is safe to say that it is difficult to build up one’s net worth while working part-time. In their book “Facilitating Financial Health,” authors Brad Klontz, Rick Kahler and Ted Klontz devote an entire chapter to money disorders, one of which is workaholism.

“Workaholics are often so immersed in work they have little time to invest in family life and child-rearing. … Many workaholics feel better about themselves at work than in any other part of their lives. Workaholics often have an unconscious belief that they have to ‘be productive’ in order to have any value, so the more that they work, the more valuable they feel. They believe that the best way to be responsible to their loved ones is to work hard and sacrifice themselves to work.”

Another fairly disturbing finding from the survey is that about 50 percent of those surveyed don’t think their heirs will attain the same level of wealth. Apparently, the respondents feel that their heirs aren’t prepared to handle family money and their heirs are not seeking advice on how to turn personal assets into multigenerational family wealth.

Of the 457 respondents, 40 percent don’t consider themselves wealthy and don’t define their personal worth by their money. They equate personal success and self-worth with the quality of their relationships with their family, friends and the success of children. This seems to conflict somewhat with the 47 percent who reported that wealth accumulation had interfered with personal relationships.

Their primary incentive to build wealth was to secure financial security for themselves and their families. The survey reports, “Slightly less than half (49 percent) feel that leaving a financial inheritance is personally important. Thirty-six percent said that making a positive impact on society and 13 percent said that leaving a lasting legacy of contribution to society are important goals in the ways they want to use their wealth.”

From a certified financial planner’s standpoint, the following survey highlights are a bit disturbing, although probably not surprising to more experienced financial planners. Although the primary goal of accumulating wealth is to provide for the financial security of themselves and their families, there is a measurable gap between that overriding goal and what they are actually doing in terms of estate and financial planning. Here are some of the more startling statistics:

* Although 91 percent of those surveyed have a will and 88 percent have an estate plan, 40 percent reported that they don’t have a comprehensive estate plan; moreover, of those who have an estate plan, nearly 50 percent don’t understand all parts of their estate plan.

* Only one in five has directives to physicians, and 31 percent have not named a durable financial power of attorney.

* One in five has never introduced their professional advisers to their spouse or to their children.

* More than seven out of 10 don’t have an irrevocable life insurance trust or an irrevocable trust of any kind. Nine out of 10 haven’t set up a charitable trust, despite the benefit of trusts in protecting family assets, passing on legacy objectives, and mitigating both income and estate taxes.

* Only one in five has increased their lifetime gifting to heirs even in light of the current estate and gift tax window of opportunity and tax benefits from doing so.

* Only 3 percent of business owners in this group have a business succession plan in place. This last item is not surprising — these dismal statistics are replicated on a nationwide basis among owners of closely held businesses, many of which are family enterprises.

The survey also underlines a fairly consistent theme mentioned in my past articles that stresses the importance of financial literacy training for children, which starts when they stop swallowing money until at least 30 years of age. Only one-third of the parents surveyed have fully disclosed family wealth details to their children, although more than half have provided some details. Of the 15 percent who haven’t disclosed anything, their primary concerns were that their children will “become lazy,” that their “children aren’t mature enough” or “they will squander money lavishly.” To underscore these parents’ concerns about when their children will reach financial maturity (at which time is it surmised that their children can then “handle money”), nearly half of those surveyed (45 percent) don’t believe that their children will reach this level until they are at least 35 years old. I suggest then that those parents revisit their trust document to make sure the ages of distribution free of trust echo this maturity concern. I also respectfully suggest that these parents start training their children now about money and good financial habits.

With what is going on in Washington regarding the debt ceiling, spending cuts and tax increases, there is not enough column space to report on the survey results relative to U.S. tax policies. Suffice it to say that many respondents believe that higher taxes on the wealthy unfairly penalize those who have reached financial independence. Furthermore, the survey reports that “nearly two-thirds agree that the trickledown effect of wealth is beneficial for society overall. … Six in 10 would be willing to pay more in taxes if there were a direct benefit to the community.”

One of the last sections of the survey asked, “In terms of your future, what are you likely to do after you retire?” A high percentage (47 percent) plan to continue working in retirement by starting a second career, starting a new business or never retiring from their current endeavors. More than half of those surveyed plan to become more active volunteers.

The full survey is available at As you read through it, do you see yourself in any of the findings? If so, it is highly recommended that you take action and do the following things:

* Work with a professional adviser who can explain your estate plan to you in plain English and review current lifetime planning opportunities available until they sunset on 12-31-12

* Formulate a written succession plan for your business

* Talk with your spouse and your heirs about money, what it means to you and how it will be distributed, and educate your children and grandchildren to become more financially literate

* If work is more appealing to you than spending time with your family, friends or relaxing, you may want to practice having some downtime and take more time away from the office. As a physician friend of ours recently said, “They aren’t going to stuff our dollar bills in our coffins. I am planning on taking off more time, spending some of our hard earned money and enjoying life.”

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 Comments may be published as Letters to the Editor.


July 20, 2011