High net-worth individuals struggle with some concerns over how much to leave to their families in their estate planning process, according to a recent white paper out of Merrill Lynch’s Private Banking and Investment Group, and financial advisors are in the perfect position to help their clients navigate those concerns.
As Merrill Lynch’s private banking group has grown, the company’s advisors have increasingly consulted with wealthy individuals who are concerned with the potential impact of a gift or inheritance on family dynamics. That prompted Merrill Lynch’s private banking group to take a closer look into the subject in a report titled “How Much Should I Give to My Family?” on the risks and rewards of giving, said executives discussing the paper’s findings recently in Boston. The paper is the third in a series of white papers concerning family wealth sustainability.
Surveying 206 adult children’s high net-worth parents who had at least $5 million in investable assets, the study’s authors began by asking, “How much is too much to give?”
“The crossover point to ‘too much,’ was $63 million,” said Michael Liersch, the head of behavioral finance for Merrill Lynch Wealth Management. “However, when we looked into the data, there didn’t seem to be virtually any prototype or common agreement that people had in terms of this idea of ‘too much.’ Some people said basically any amount was too much to give and some people said no amount was too much to give, but it was pretty broadly distributed in terms of those dollar amounts.”
“We thought to ourselves, there must be something deeply seated here that’s not necessarily about the dollar amount, but something more qualitative or values based,” he said.
To that end, Liersch said that 46 percent of those survey respondents said they considered an inheritance or gift to be “too much” when it provided the recipient with a disincentive to achieve his or her full potential, and 28 percent said it would be “too much” when it allows the recipient to live a life of perpetual leisure.
But 35 percent said the definition of “too much” depended a great deal on the person receiving the gift or inheritance.
Unfortunately, those crucial conversations about wealth and family values do not always occur when cooler heads might prevail. The survey further found that the top three events that trigger a dialogue about wealth transfer are a health issue (56 percent), the death of a friend or family member (43 percent) or an initial discussion with a professional advisor (34 percent). The study’s authors said a fear of disrupting family harmony and a lack of clarity around intentions were largely to blame.
While 63 percent of the survey participants had a trust and estate plan, just 29 percent had had a conversation with the recipients, said Stacey Allred, the leader of Merrill Lynch’s Center for Family Wealth Dynamics and Governance.
To help wealthy individuals get clear on their intentions, she said, advisors might talk with their clients about articulating those intentions in a letter, values statement or video.
“These solutions are not rocket science. They’re practical solutions that, if you really think about it and are more intentional in communicating this, can really make a difference in the long term to families,” Allred said. “What we found here was that advisors and families have a long way to go in terms of the opportunities to be intentional about documenting and communicating the purpose of their wealth.”
