Issue 25: 2013

WEALTH MANAGEMENT

Family Wealth — Is It All About the Money?

For wealthy families, checkbook balances run a distant second to more fundamental values and concerns.

PHOTOGRAPH BY ANDY RYAN

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Today's families are complex, with emotional, lifestyle and financial needs that are closely intertwined. And substantial wealth adds another layer of complexity. Effectively addressing the full combination of a family’s values, generational needs and differences, and goals often requires a new way of thinking about wealth.

“Family wealth” is about so much more than account balances, investment choices and tax awareness. Family wealth is about people. It’s about people who are dealing with relationships and fundamental issues such as mortality and the legacy that each of us hopes to leave, both individually and as part of the family.

While the call of family is as strong today as it has ever been, today’s families tend to be more inclusive, more diverse and more open than in the past. Managing wealth in this environment is more challenging given the many different factors to consider.

Women Have Unique and Diverse Planning Needs

Women are a dominant economic force in the world. They are also more likely than their male counterparts to be primary caregivers, to face significant retirement income gaps and, if in an opposite-sex marriage, to outlive their spouse.

In the case of divorce, women tend to bear more of the effects than men. For instance, women are much more likely to be the ones caring for children from previous marriages. These women may need to address as part of a financial plan issues such as ongoing financial support for the children, and college and other educational expenses.

Today’s families tend to be more inclusive, more diverse and more open than in the past.

At the same time, women typically bear much of the responsibility as caregivers for the older generation. These additional responsibilities can be all-consuming and can take a toll both financially and emotionally. By anticipating and addressing these kinds of needs in an overall wealth plan, the impact they have on daily life may be lessened.

LGBT Couples: Despite Major Gains,
Planning Challenges Remain

Our society has experienced tremendous change as lesbian, gay, bisexual and transgender (LGBT) individuals have fought human rights battles for recognition and acceptance. But we all are just now coming to grips with the unique planning needs that LGBT individuals and same-sex couples have in such areas as gift and estate transfer and income taxation, adoption and child care, incapacitation and death, and even citizenship. Inconsistencies in the rights and benefits that same-sex couples are entitled to at the federal and state levels create significant complexity. It is imperative that these inconsistencies be kept top of mind if LGBT couples hope to achieve their personal and financial goals.

Preparing the Next Gen to Take the Reins

According to the U.S. Trust 2013 Insights on Wealth & Worth™ survey, few wealthy parents believe their children will be mature enough to handle their wealth before the age of 25. Approximately half believe their children will be mature enough between ages 25 and 34, while one-fifth don’t think their children will be mature enough to handle wealth until they are at least 40 years old. What is more, over 80% of young high-net-worth individuals rate their financial knowledge to be moderate at best and express an interest in increasing their knowledge.1 Our experience confirms the importance of financial education. In fact, we see it as a critical stepping stone to help prepare the next generation to handle the responsibilities of wealth.

Eldercare: A Rapidly Expanding Need

The number of Americans over 65 is expected to double in the next 40 years. Members of younger generations have real concerns about this; many expect their parents or in-laws to need financial assistance at some point in their lives. As a reflection of the value younger generations place on family, many fully intend to provide that assistance — even if it jeopardizes their own financial security. Yet few have a financial plan that accounts for the cost of the long-term care their parents might need. This is a planning gap that needs to be addressed if younger generations don’t want their parental support to impede the attainment of other long-term wealth goals.


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Family Members as Trustees

There is a growing desire among patriarchs and matriarchs to have family members serve as trustees and executors.2 It can provide comfort to the older generation to know that loved ones will be acting as the agents of their legacy. The younger generation typically accepts this responsibility not just as an honor but as a sacred charge.

The responsibilities of these roles can require many talents, such as managing investments, maintaining and managing real property and other physical assets, understanding legal and tax issues, and managing through complex and sometimes difficult family dynamics. As you create your estate plan, give consideration to the person you select to serve as trustee or as executor and the skills needed to responsibly carry out the duties incumbent in the role.

Leaving Your Mark

Experience tells us that our client families see the meaning of wealth as something beyond dollars and cents. In the end, it comes down to the legacy that each person and each family hopes to leave. When it comes to conveying the values, lore and heritage of a family to its various members, there’s perhaps no better starting point than philanthropy. In fact, in our research with ultra-high-net-worth families, parents said they would rather their children grow up to be charitable than wealthy.

Families see the meaning of wealth as something beyond dollars and cents.

One of the most remarkable things about philanthropy is how, while benefiting others in important ways, it helps to identify, strengthen and enhance bonds among even the most diverse families. That is a legacy that, I think, any parent would be proud to claim as his or her own.

The Underlying Values Remain the Same

Even though no two families are alike, the underlying values of love, commitment and legacy hold strong.

As you think of your family, what are your needs? How can you go about addressing those needs across the broad spectrum of your family, in all of its generational, geographic and lifestyle diversity? Are you thinking about how these considerations affect your family today? And, more important, tomorrow?

Discuss with your advisor how the suite of family wealth services we have assembled can help you and your family address the complexities of wealth that spring from these familial bonds. 

1 Merrill Lynch Private Banking and Investments Group, Young High Net Worth Insights Survey, 2013.

2 In some states, the term personal representative is used in place of executor.

IMPORTANT INFORMATION

Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations and before changing or implementing any financial, tax or estate planning strategy.

OTHER IMPORTANT INFORMATION

The 2013 U.S. Trust Insights on Wealth and Worth™ survey is based on a nationwide survey of 642 high-net-worth and ultra-high-net-worth adults with at least $3 million in investable assets, not including the value of their primary residence. Among respondents, 37% have between $3 million and $5 million in investable assets, 31% have between $5 million and $10 million and 32% have $10 million or more. The survey was conducted online by the independent research firm Phoenix Marketing International in March 2012. Asset information was self-reported by the respondents. Verification for respondent qualification occurred at the panel company, using algorithms in place to ensure consistency of information provided, and was confirmed with questions from the survey itself. All data have been tested for statistical significance at the 95% confidence level.