The new dynamics of wealth transfer
How individuals pass on their wealth varies widely, influenced by economics, religion, age and the dynamics of the evolving family.
Global economic uncertainty and the changing shape of the modern family are prompting prosperous individuals around the world to focus more intently on how they safely pass on their wealth.
In a survey of 2,000 high net worth individuals conducted by Ledbury Research on behalf of Barclays Wealth, almost 60 per cent said that succession planning was currently “a key financial priority”, with those at the higher end of the income scale placing the greatest importance on the responsible transfer of their assets.
However, attitudes towards the subject vary depending on the background, religion and age of respondents. While three-quarters of those surveyed from areas such as South Africa, Brazil and the Middle East see succession planning as a high priority that falls to almost 50 per cent for those in the US.
Religion – or the lack of it – also appears to play a key role here. Individuals who identified themselves as secular in the survey tend to give inheritance planning a low priority while those identifying themselves as religious are more likely to make it a financial focus.
A time to plan
Counter-intuitively, an individual’s focus on the mechanics of wealth transfer does not seem to increase in a straight line as they grow older. Instead, succession planning is at its most important to those in their 30s and 40s – when marriage, property purchase and the future well-being of their dependents are foremost in their thoughts; and it is also front-of-mind when people get into their 60s and 70s and start thinking about things like passing on specific assets or selling a family business.
When it comes to the division of those assets, the vast majority (70 per cent) thinks these should be split evenly between their children. Indeed, just 4 per cent of those questioned said they did not believe that any assets should be passed on to the next generation.
However, many of those surveyed are anxious about how that wealth will be treated after they’re gone. Over a third were concerned that the next generation will struggle to manage their newly acquired wealth wisely, with that trust varying widely around the globe. Those in developing economies tend to trust their children’s ability to protect an inheritance much more than those in developed nations.
Around 70 to 80 per cent of wealthy respondents from the Middle East, Africa, Latin America and Asia trust their children/stepchildren to safeguard their financial legacy. But in North America and Europe levels of trust fall to around 60 per cent.
Multiple marriages play a big part in determining such trust. The survey indicates that individuals in their first marriage tend to trust their children more; when stepchildren are introduced into the mix, there appears to be a clear dilution of overall confidence in how well inherited wealth will be managed.
Wills, conflict and disinheritance
Given such complexities, it is surprising to find that many of those with significant wealth have not formally recorded what they want to happen to it. The research shows that almost a quarter of the high net worth respondents didn’t actually have a will in place. And even among those that do, there is evidence of frequent changes to the will’s beneficiaries. Some 69 per cent of wealthy individuals have revised their will at least once and 26 per cent have revised it three times or more. The most prevalent reasons: “increase in wealth” and “tax efficiency/tax planning”.
In some cases, those revisions will have related to the thorny issue of disinheritance. The research finds that around 10 per cent of the wealthy individuals interviewed said they had disinherited someone or cut a family member out of their wills. Such a decision is likely to have its roots in the kind of family conflict that frequently surrounds wealth, most commonly when individuals feel that they haven’t received their fair share.
Around 40 per cent of the sample said they have had personal experiences of family wealth leading to conflict. Indeed, the greater the wealth, the more likelihood of conflict, the research shows.
With potential for dispute, individuals tend to seek out guidance on how best to pass wealth on to their children. And almost two-thirds of the respondents agreed that decision-making on an inheritance for children or stepchildren requires a great deal of professional advice.
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