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Talking about money and death can be awkward, and family dynamics can make it even trickier, which is why so many families downplay or ignore estate planning resulting in hurt feelings, family rifts, costly tax issues and estates tied up for years in probate.
The silent generation and baby boomers, upon their death, will transfer an estimated $30 to $68 trillion to adult children. That means we’re in the middle of an unprecedented transfer of generational wealth. What’s the best way to tackle that? Open communication and professional help are a good place to start, according to two recent surveys on financial and estate planning.
“Obviously, the topic of the end can be depressing and overwhelming. Clients are apprehensive to talk about it. But families need to talk about all things – not just money. Talks around intentions and values and family learnings should be discussed,” said Kathleen Iannone, executive director and head of the UBS Multigenerational Segment.
UBS surveyed 4,500 high net worth investors in the U.S., Latin America, Europe and Asia. Four in 10 don’t have an up-to-date will or wealth transfer plan. Half aren’t having important conversations to prepare their future heirs.
A survey by D.A. Davidson & Co. found similar results – only one in three (34%) adult Americans has an estate plan. Of those who do have an estate plan, 20% have not updated their plan in the last five years. More women (72%) do not have an estate plan compared to 59% of men.
“Americans are vastly underprepared to pass on their assets according to their wishes and to care for loved ones in the event of a medical emergency,” said Andrew Crowell, vice chairman of wealth management at D.A. Davidson. “If the COVID-19 pandemic has taught us anything, it’s the importance of being prepared for life’s uncertainties, and creating a focused and detailed estate plan can do just that.”
UBS found that the complex task of dividing assets fairly and the difficulties of communication contributed to planning inaction.
The good news is that both benefactors and heirs agree on how to overcome the barriers: six in 10 of those surveyed said they are eager for more open communication. Half welcome professional help to facilitate dialogue and want insight on how other families approach wealth transfers, UBS found.
“Working with a financial professional can make such an impact when it comes to coordinating these important elements of your financial plan,” said Crowell. “Estate planning can be a sensitive topic, and an adviser can really help bridge this knowledge – and coverage – gap.”
According to D.A. Davidson, those who have worked with a financial professional also feel more confident (39% vs. 26%) and prepared (33% vs. 20%) discussing their estate plan and end-of-life wishes than those who have never worked with one. Likewise, those who have a formal estate plan feel more confident (50% vs. 22%) and prepared (47% vs. 15%) discussing their estate plan and end-of-life wishes than those who do not.
A total of 37% of individuals reported that they did not have an estate plan because they felt they did not have enough money to warrant needing one. That said, among those who have worked with a financial professional, procrastination was the biggest factor deterring them from creating an estate plan (44%), D.A. Davidson found.
‘The talk’
Aside from a will and estate plan, half of investors have not had inheritance conversations, which are critical to prepare heirs for the smooth transfer they desire. For example, half of benefactors have not disclosed where assets are held, how they intend to divide them or how much they’re worth, UBS found.
Both benefactors and inheritors are reluctant to have “the talk,” UBS said.
Despite the risk of waiting too long, neither believes inheritance is a pressing issue. In addition, parents don’t want heirs to feel entitled to their wealth and heirs don’t want to broach the topic for fear of appearing greedy, UBS said.
Failure to take the necessary wealth transfer steps can result in financial loss and family discord, UBS found. Many estates pay excess taxes without protection strategies in place. Others are subject to court decisions and delays when benefactors neglect to draft wills and other documents.
Among investors who have received an inheritance, four in 10 wish they’d been more open with their parents beforehand. U.S. investors seem to be most willing to speak openly with parents about their final wishes, UBS found.
Many heirs experienced the fallout of not discussing inheritance plans. A third admitted to having unresolved issues and conflicts with other heirs. For those who served as executors, 64% said carrying out their benefactors’ last wishes was difficult, according to UBS.
“You need to ask the executor if they want to play that role. A lot of times, they aren’t sure of what’s involved and not ready to take on that responsibility,” Iannone said.
“People in general say ‘Of course they understand what my wishes are,’ but sometimes those conversations aren’t as obvious. It needs to be spelled out,” said James Jack, executive director and head of the business owner client segment at UBS.
Though obstacles exist, and wealth transfer can be complicated, both benefactors and heirs agree on how to break down barriers.
Topping the list is more open, ongoing and purposeful communication. Six in 10 investors agree that parents should initiate the inheritance conversation. In addition, investors cite the importance of having a written plan, professional assistance and insight into how other families approach estate planning.
Jack suggested having a designated box or location with all the crucial account information, documents and passwords organized for the executor.
“Make sure you’re communicating how to do things, where to find things and that you’re organized,” Jack said.
