Residents of the United States, please read this important information before proceeding
- New report reveals 40% of the UK’s high net worth individuals do not trust the next generation to protect their inheritance
- 37% of wealthy Britons have experienced family conflict as a result of family wealth
- Report suggests that earned, as opposed to inherited, wealth is key to financial happiness
When it comes to passing on wealth, 40% of the UK’s high net worth individuals do not trust their children and stepchildren to protect their inheritance, says the latest report in the Insights series, launched today (Monday 14th November, 2011).
The report, The Transfer of Trust: Wealth and Succession in a Changing World, is based on a global survey of more than 2,000 high net worth individuals. It provides an in-depth examination of wealthy individuals’ attitudes towards wealth transfer and succession planning, as well as offering insight into what the future holds for the next generation. Interestingly, it reveals how wealth in many cases can act as a double-edged sword, leading to distrust and conflict.
Globally, developed countries display higher levels of uncertainty when it comes to trusting their children and stepchildren to look after their wealth. Respondents in Australia (59%), North America (61%) and Europe (62%) show lower levels of trust in their children and stepchildren when it comes to money management and protecting their inheritance, in comparison to the Middle East (78%), Africa (77%) and Latin America (75%).
Experts featured in the report have partly attributed this lack of trust in the future generation to the changing structure of many UK families. As second and third marriages become more common, this is thought to lead to more complex relationships with both children and stepchildren in relation to wealth and inheritance planning.
David Semaya, Head of UK and Ireland Private Bank, Barclays, said: “This report provides an in-depth study into the attitudes of high net worth individuals towards succession planning. It is clear that with wealth comes an increasing complexity of choice, and in some cases this can result in concerns about trust and conflict when considering the intergenerational transfer of wealth. Understanding options for succession planning in advance, and seeking professional advice can help address these fears and provide confidence that your wealth will be wisely managed in the future.”
Wealth, happiness and family dynamics
Parents want to pass on their material wealth to their children, as well as a roadmap for a happy life, but the report reveals some interesting paradoxes about inheritance and succession. Source of wealth is seen as a key determinant of financial happiness, with earned wealth much more likely to result in happiness than inherited wealth. However, wealthy respondents in the UK remain committed to passing on their wealth, with 94% of respondents intending to do so.
However, an unfortunate drawback of wealth is its ability to cause conflict – and in the context of succession – family conflict. The report reveals that 37% of wealthy individuals in the UK have had direct experience of family wealth leading to disputes.
Accentuating this conflict, the report reveals that the risk of disinheritance increases in line with wealth for high net worth individuals in the UK. Whilst five per cent of those with wealth levels of between £1m and £2m have disinherited someone or cut a family member out of their wills, this rises to 13% among those with more than £10m.
Catherine Grum, Director, Wealth Advisory, Barclays, commented: “In the case of wealth that has been inherited, tensions around entitlement may lead to disputes. However, it is surprising just how many wealthy respondents report experiencing such conflict and the impact that source of wealth can have on this, with wealthier respondents more likely to have encountered such conflict.”
Despite all the potential tensions associated with succession and wealth, the report shows that the UK’s high net worth individuals remain committed to passing on their assets to the next generation, with only six per cent of UK respondents believing that this should not be the case. Globally, 60% of respondents say that they require a significant level of professional advice when deciding on an inheritance plan for their children and stepchildren, emphasising the need for expert advice to guide them through this decision-making process.
The report also explores what wealthy Britons perceive to be the major challenges facing the next generation, and what they can do to best prepare their children for success in the future. “Caring for ageing populations” is ranked as the biggest challenge facing the next generation by far, with 73% of respondents expressing anxiety over how the next generation will support the growing number of retirees. This is well above the global average of 52% and exceeds the second greatest challenge perceived by the wealthy – economic turbulence, including inflation and rising taxation. This is a consistent concern across the globe, reflecting the scale and intransigence of the current global economic problems. It is also linked to the third most cited concern in the UK – “employment opportunities”.
Top five challenges for the future - UK:
1. Caring for ageing populations (73%)
2. Economic turbulence (52%)
3. Employment opportunities (52%)
4. Climate change/environmental issues (40%)
5. Rising education costs (22%)
When it comes to the skills that the next generation need to equip themselves with in order to be successful in life, respondents advocate technical subjects, such as IT/Technology (68%), Science (59%) and Maths (54%), rather than Humanities and the Arts.
Wealthy Britons also have clear ideas on the languages that the next generation should learn. The rise of China and the country’s significance for future generations is revealed in the fact that 75% of respondents believe that Chinese – specifically Mandarin – is the most important language for the next generation to learn. While 68% of global respondents respondents consider English to be a principal language for children to learn, for Britons the key languages after Chinese were Spanish (41%) and French (21%).
Catherine Grum continues: “The report has found that wealth is not the only thing that parents can pass on to their children. Sharing insight into what the future holds, imparting advice on what it takes to be successful, and the skills needed to equip younger generations to achieve their goals in life are also important to parents. Respondents are aware of the growing influence of China and the globalisation of industry and are keen for the next generation to capitalise on this to give them the best chance in life.”
For further information contact:
Cohn & Wolfe
+44 (0)20 7331 5365
+44 (0) 796 140 6684
Louise Pancott, Corporate Communications
+ 44 (0)20 3134 7303
Read the full report: [PDF, 3MB]