What clients want you to know about transferring wealth to their heirs

Transferring significant fortunes to heirs is a major concern among clients and they are keen to ensure that their priorities are met as an estimated $84 trillion in wealth is passed down over the next 20 years.

Raymond James recently surveyed investors with at least $500,000 in investible assets to determine what matters most to them when it comes to intergenerational wealth transfers.

As is often the case with finances, having a robust plan that is communicated and executed effectively is key. Given the high-risk of family fortunes leading to family feuds, ensuring everyone’s expectations are met is essential for advisors.

Interestingly, although only 45% of respondents said they were ‘extremely transparent’ with their own heirs, 71% said that if they were in line for an inheritance they would consider proactive communication important.

“The most important factor in executing a smooth transfer of wealth is having a documented plan in place and to regularly revisit that plan over the years to make sure it’s properly representing your current wishes,” said Joe Weaver, president of Raymond James Trust. “The most common reasons for a breakdown in a client’s plan are, first, the absence of preparation and taking the time to put appropriate documents in place. Second is not thoroughly communicating their intentions to those impacted.”

HAVING THE TALK

Keeping the peace is a high priority with 87% saying so and communication and transparency the ways they expect to achieve it. However, too few people speak with their family about their wealth and how it will be passed on.

“For many, an ideal scenario would be to take a set dollar amount and divide it equally among heirs, but that’s rarely the case,” added Weaver. “With illiquid assets to consider such as property, collectibles, businesses, heirlooms and so on, the task of dividing assets equitably becomes more complex. This is where discord in the family can begin if a client’s intentions aren’t clearly communicated.” 

Investors also want to ensure that heirs understand their values and reasons for wanting their money to do good and this is best done through talking and sharing impactful stories, or perhaps creating a philanthropy "board" among heirs.

More than half of respondents want their legacy to have philanthropic impact and 1 in 10 intends to leave at least 25% of their wealth to charity.

“It’s difficult to memorialize your values and wishes in a legal document, so one solution that’s becoming more prevalent is the inclusion of a legacy letter. A client can sit down and write about the lessons and stories that they want to be sure reach the next generation. Then the letter is either attached to the planning documents, or more often, read and recorded over video to be passed on,” Weaver said.

GETTING ADVICE

More than 9 in 10 poll participants said that tax efficiency is important in the transfer of their wealth, but 37% do not have a plan to do this and only 26% have consulted tax professionals to achieve it.

However, respondents are likely to have consulted with a financial advisor, estate planning professional, or accountant.

Those working with an advisor are more likely to have a documented wealth transfer plan (84% vs. 66%) and to have tax-efficient strategies included in their plan (68% vs. 50%).

“Financial advisors are in a unique position to guide the wealth transfer process, from recommending the appropriate professionals to walking a client through next steps,” Weaver said. “The advisor often has an established relationship with the client and their family and can lean on that experience to help build a custom communication plan that will work best for the family’s personal dynamics and expectations.”