Heirs Are Often Unaware of Family Wealth Decisions, Study Finds

In the Dark

By Susan Atran

Bank of America recently announced the findings of a new study conducted by Merrill Private Wealth Management, which found that 64% of wealth holders have never talked with family members about how or why they intend to pass on their assets. While 48% plan to communicate this information eventually, or assume family members already know, 10% vow never to divulge details of their estate plan, primarily because they consider it personal and no one else’s business. But is that a good decision?

“This research is designed to help families make better decisions and secure the promise of wealth, including the impact it can have within and beyond one’s family and lifetime,” said Andy Sieg, president of Merrill Lynch Wealth Management.

For this study, Merrill asked more than 650 high-net-worth individuals across the country how different types of financial decisions are made and communicated within their family. Part of an ongoing series of white papers on wealth sustainability from the Merrill Center for Family Wealth, findings from this study were published in a report titled “How Do Families Make Effective Wealth Decisions?” Among them:

• Decisions about family money — such as gifting to family and charities, dividing assets among heirs, and establishing trust provisions or limitations — ranked as the most important and hardest to make, compared to decisions about saving, investing, spending, and other day-to-day finances;

• Just 33% of people have informed their family of lifetime gifts already made or committed to, such as assets held in a trust or funding of education, a down payment on a first house, or another purpose;

• Seventy-two percent have not discussed their philanthropic commitments;

• When asked what they consider to be the most important idea to communicate when discussing wealth with family, the top response was to be a good steward and handle family money wisely. However, only 46% have talked with heirs about fundamental family values and operating principles;

• On the distribution of their estate, 69% of wealth holders plan to divide their assets equally among heirs, while the rest say allocation decisions are based on specific criteria, such as merit for individual contributions (11%) or need (8%); and

• While 22% plan to openly share details of their estate plan with the whole family, 17% would share information only as it applies to each person.

“Decisions about family money have the potential to change lives, yet the outcome depends on how well the purpose and reasoning behind those decisions are understood, and too often that is left unsaid,” said Stacy Allred, head of the Merrill Center for Family Wealth. “Misunderstanding can lead to family conflicts, resentment, and other unintended consequences, including the misuse or loss of family wealth.”

The Merrill Center for Family Wealth specializes in helping families define the purpose of their wealth. This study found that, in six in 10 families, there is no formal structure or rigorous process in place to ensure family wealth decisions are made and communicated effectively. When asked how wealth decisions are typically made, the most prevalent response was an autocratic and top-down approach whereby one person makes decisions with little or no input from anyone else. Seventeen percent of families make financial decisions democratically with collective input or representation of all members.

Three-quarters of participants, including more men (79%) than women (68%), report complete confidence in their financial decisions. Looking back on decisions they’ve made, however, just 56% of people said their decisions always turned out well. The rest reported mixed results, including 21% who said their decisions turned out badly or they delayed making decisions because they were unsure of the outcome.

“The best form of financial parenting and a big part of improving the outcome of decisions involves putting more care into the decision-making process itself,” said Matthew Wesley, director of the Merrill Center for Family Wealth. “Family wealth decisions can be complicated by family dynamics, a long-time horizon, and unrecognized biases that call for a deliberate and disciplined approach.” u

Susan Atran is senior vice president of Communications for Bank of America.