‘Family dynamics’ are the top factor affecting when ultra-high-net-worth individuals pass on their wealth, according to findings from the Bank of New York’s private banking division.
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Some 45 per cent of ultra-rich decision-makers with at least $10 million in investable assets named family dynamics as a factor affecting wealth-transfer timing, in the 501-strong Wealth in Motion study. This came ahead of concerns over tax or regulatory changes at 44 per cent and longer-life planning at 42 per cent.
Nearly half of the US-based UHNW respondents thought their heirs were unprepared to manage inherited wealth. Among this group, the leading concern was their beneficiaries’ lack of experience handling significant amounts of money.
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Alvina Lo, head of advice, planning and fiduciary services at BNY Wealth, told Spear’s the bank’s clients are balancing worries about funding their own advancing years with fears their children are not ready for the wealth set to be bestowed on them.
‘Money is still very much a taboo topic in a lot of families,’ Lo said. ‘A lot of people know they want to do this, but they have not had the communication that they feel is necessary so that the next generation is prepared.’
The report called into question the notion of a ‘sweeping’ Great Wealth Transfer that it said the finance industry has expected for decades, citing a more complex process that has been slowed down by the rich living for longer.
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‘The “great wealth transfer” may be less a single moment than a prolonged transition requiring multi-decade planning, stewardship, communication and gradual asset transfer,’ the report said.
Lo added: ‘When you have the concern about living longer and running out of money, and then worry about whether your children are ready for the wealth and not wanting to have that conversation, that easily leads to the delay that we’re experiencing.’
UK inheritance research supports the idea of a prolonged transition. The Institute for Fiscal Studies (IFS) estimates that for people in England, the average age at which a last-surviving parent dies will rise from 58 for those born in the 1960s to 64 for those born in the 1980s, resulting in later inheritances.
Intention vs execution
The BNY Wealth research highlighted significant gaps in what ultra-wealthy individuals intend to do and what they have actually put in place.
Some 47 per cent of respondents said their wealth-transfer plans were not fully complete, and while there was a clear concern about how heirs would manage wealth, 68 per cent of respondents said heirs have had little or no input into wealth-transfer decisions.
Only 31 per cent had discussed plans in detail, while 21 per cent had decided on heirs – but had not yet discussed any planning with them.
‘What really jumped out to me was the gap between intention and execution,’ Lo said of the findings.
Another, starker example, was charitable giving, with 91 per cent of the ultra-rich saying they wanted to leave money to good causes, but only 36 per cent having finalised those plans.
A similar succession-planning gap appears among UK UHNWs. Findings from BDO this year showed just 30 per cent had a complete succession plan.
And while 28 per cent of families said a ‘lack of clear communication’ was a critical factor in disagreements over wealth, family communication ranked lowest among the factors UHNWs considered important for wealth transfer.
Lo said that, in her experience, frustration among adult heirs was often less about not having access to family wealth, than being excluded from decisions about it.
‘We definitely have plenty of clients whose children are kind of chomping at the bit and feel like they’re not being treated as adults,’ she said, noting that some were in their 40s.
‘It’s not so much about the legal ownership, but about being at the table and having a vote.’
