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Inheritances require proper planning, open communication

In 2004, the American Association of Retired Persons — now known as AARP — issued a report titled, “In Their Dreams: What Will Boomers Inherit?”

In a nutshell, the report said, “The idea of an inheritance, like winning the lottery, leads us to dream about many possibilities. However, for the large majority of boomers, inheritances will remain only a dream.”

The study found, despite the estimated $10 trillion available for generational distribution, that nearly 80 percent of households had not, and likely will not, receive an inheritance. Obviously, families with wealth will be the biggest beneficiaries.

The main conclusion of the AARP report is “inheritances, despite wishful thinking and optimistic projections, are not likely to bail out the boomers.”

Flash forward to today, and a new survey from U.S. Trust, the 2012 Insights on Wealth and Worth, looks into the attitudes of high-net-worth adults and inheritance issues. The report finds that 73 percent of those over the age of 67 say it is important to leave a financial inheritance to their children.

But, more than money, the U.S. Trust report identified “family harmony and financial security as top goals.”

In truth, 61 percent of wealthy parents are not fully confident their children will be well-prepared to handle any financial inheritance left to them. As a result, only 37 percent of those parents have disclosed their family’s level of wealth to their children, and another 51 percent have only hinted about the value of their assets.

Surprisingly, a relative small number of these high-net-worth families have taken steps to create the necessary estate planning documents to ensure the distribution of assets when they are gone in a way that meets their goals and objectives. The report found six in 10 people surveyed do not have a comprehensive estate plan.

When asked why they haven’t pursued a living trust to manage their estates, 43 percent said they believed their estate planning wishes were outlined in a simple will and there was no need for a trust.

The U.S. Trust 2012 report compared the attitudes of three generations: baby boomers (between the ages of 47 and 66), the generation before them (aged 67 and older), and generations X and Y (aged 18 to 46).

Most of those surveyed described themselves as “independent, opportunistic and smart when making investment decisions.” Not surprisingly, the youngest generation favors growth over preservation, and they are more inclined to assume increased risk to achieve growth returns. Older generations are more inclined to seek asset preservation and lower risk strategies.

Bottom line, proper financial planning during life — making decisions on investing, elder care and taxes — is critical to the ultimate decision of how assets are passed from one generation to the next and how much money will be involved. Opening lines of communication on these issues will turn an inheritance into a legacy.

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