Planning for high-net-worth families would be easy if it weren’t for those darn HNW families!
At least that’s the sentiment expressed by advisors in a recent study by Key Private Bank. The poll surveyed 130 client-facing advisors to HNW families about their experiences, particularly in the area of estate planning.
Seventy-seven percent of advisors say the hardest part of estate planning is navigating interfamily dynamics. And, the communication difficulties that are synonymous with interfamily dynamics can lead to mistakes that often would be easily avoidable under different circumstances.
According to the study, the biggest mistake, cited by 43 percent of advisors, is having no plan at all, followed by not updating documents regularly (35 percent). Thirty-five percent also say clients may inaccurately believe that a will can oversee the distribution of all their assets.
It’s important for advisors to take the lead in starting such conversations. If they don’t, they either won’t happen at all or will occur too late to be of much help. The study notes that, most often, estate-planning conversations are triggered by advisors raising the topic (66 percent) or life-altering events, such as an accident or health crisis (25 percent). In an ideal world, clients would initiate such conversations on their own and not wait to be prodded by either an advisor or cruel fate. The reasons this doesn’t generally happen are myriad but often boil down to one word—fear.
“Some clients may be hesitant to have a conversation about estate planning with their family members because they fear that sharing their wishes will cause conflict,” said Andrea M. Griffiths, national manager trust settlement administration, Key Private Bank. “In designing an estate plan, clients must sort through a number of emotional and psychological issues, ranging from treatment of children—where what’s fair is not always what’s equal—to the beneficiaries’ perception of their relationship with the grantor, as well as their behaviors and potential biases toward other beneficiaries.”
Given the depth of the fear associated with these topics, it’s not terribly surprising that 34 percent of respondents to the study noted that convincing clients to put an estate plan in place is a challenge.
Tellingly, however, death is apparently not nearly as scary as family, as convincing clients to communicate wishes openly and honestly with family members was cited as a challenge by 57 percent of advisors in the same category as above. A whopping 81 percent of advisors say only “some” or “hardly any” clients are having open conversations about estate plans and wishes with their families. As a result, roughly 40 percent of advisors feel that half or fewer than half of estate plans holistically capture their clients’ values in the transference of wealth to the next generation.
“The sensitivities of talking about estate planning often present emotional hurdles to putting a plan in place—especially when multiple marriages and blended families are involved,” said Karen Arth, head of trust with Key Private Bank. “To navigate these complexities, we encourage our clients to take a proactive approach to estate planning by talking through their wishes and desires early on with family members to set expectations, delegate responsibilities and avoid misunderstandings later on.”