A recent study by Campden Wealth, the Institute for Private Investors and Wilmington Trust found that, among the surveyed pool of wealth holders,1 67 percent are apprehensive about sharing inheritance details. The top cited reason for withholding inheritance information is concerns about demotivating or disempowering heirs. If this sounds a bit troubling, it’s because it is. Strategic planning, open communication and education are the keys to successful wealth transfers — but heirs need information about their inheritance for all of that to happen.
Is Withholding Information Justifiable?
Will heirs actually become unmotivated and squander their family fortune away once it falls on their lap, as many wealth holders fear? If so, wealth holders might be seemingly justified in their desire to withhold details about the inheritance. Although a difficult question, largely because the potential that some heirs will vastly rely on their inheritance and become discouraged from pursuing professional endeavors exists, being unprepared and unaware of the wealth they’re coming into arguably puts the family fortune at greater risk; or does it?
Knowledge of Wealth
The survey acknowledges that a shift is happening in intergenerational information sharing. Wealth holders are sharing more details with their heirs than their benefactors shared with them. For example, 48 percent of wealth holders say they shared complete information that an inheritance was coming with the heirs, compared to 33 percent of wealth holders who received such information from their benefactors. Despite this improvement, the wealth holders were less likely to share the amount with their heirs than their family was with them.
Reasons for Withholding Inheritance Information
As previously mentioned, the number one reason wealth holders are reluctant to disclose inheritance information to heirs is fear of turning them into lazy, entitled brats who lack the drive to accomplish anything. Interestingly enough, a majority of inheritors2 surveyed say they intend to maintain a similar lifestyle and continue working after receiving their inheritance because they feel a sense of obligation to maintain and grow the wealth for future generations, completely undermining the basis for wealth holders’ fear of the opposite. Such fear also seems to fail to take into account that wealth can be left behind through vehicles such as trusts, which can disburse smaller amounts of the fortune at various intervals during the heir’s life.
Some other reasons inheritance information is withheld, according to the study, include: waiting for heirs to get older (19 percent); undecided as to what assets to leave and how to do it (29 percent); and fear that heirs will rely on wealth that might not materialize (10 percent). Ironically, the respondents all assigned high priority to financial education, learning how to best manage family dynamics and decision making (presumptively from a relatively young age), and only 21 percent said they feared losing all their wealth. Also, heirs don’t need to know specifics of the assets making up an inheritance to prepare for it, but some general knowledge of its existence is necessary, as explained below.
5 percent of wealth holders surveyed actually felt that the “inheritance is not the heirs’ business.” This may seem like sound rationale at first — children shouldn’t be raised to feel entitled to a fortune that resulted from their parents’ perseverance and hard work — but it isn’t at all. Wealth holders can make clear that the inheritance is contingent on certain factors (for example, finishing college and securing a job) to motivate heirs.
The Role of the Advisor
Wealth holder fears aren’t completely unfounded. A good advisor can help clients reconcile the fears that knowledge of an inheritance can have with the need for educating their heirs. “Families should prepare their heirs to receive wealth well, but must be careful about how and when,” cautions Tom Rogerson, senior family wealth strategist at Wilmington Trust. He explains that “parents vacillate between sharing nothing with their heirs or sharing everything as a starting point, and neither of these are the answer. It’s important to tell children and grandchildren when they’re ready to hear it.”
According to the survey, high-net-worth families also look for advisors who can address some “softer” issues. In this regard, respondents’ concerns included: others knowing about their money, becoming targets of predators or scams and being judged solely by their wealth. An advisor with expertise on managing reputation, privacy and security can help alleviate such concerns and distinguish himself from competitors.
1 53 percent of respondents are wealth holders, a group comprised of individuals who’ve already received more than half of their expected inheritance.
2 The other 47 percent of respondents are inheritors, a group comprised of individuals who’ve received less than half of their expected inheritance.