If you want to help your high net worth clients pass on their wealth while preserving tranquility in the family, there are some aspects of estate planning that you should definitely keep in mind.
Research shows that most wealthy families lose their wealth by the third generation. How you as an advisor approach investment management, tax planning, family governance and teamwork will decide if your clients can avoid this unfortunate fate.
Academic research bears out anecdotal evidence, with multiple studies suggesting that 70% of wealthy families will see their fortune dissipated by the third generation and 90% by the fourth. But this isn’t really news. Andrew Carnegie, Henry Ford and other wealthy individuals have spoken of the difficulties of inherited wealth.
Families that preserve their wealth take advice from a wide circle of professionals, and understand the importance of building a team to achieve their objectives. The investment manager is obviously a key member of that team. A study by BNY Mellon involving $8.7 billion in assets over three years found that many portfolios had significant problems.
Of the portfolios reviewed, 89% were missing an entire asset class, while a similar percentage showed the absence of an overall plan. Almost 75% had no or very little in the way of tax management.
Equity market gyrations also raise cause for concern. Investors need to take the lead in calming clients spooked by volatile markets. Clients are often afraid to take action in such circumstances, and it’s up to advisers to make sure the right action is taken.
Tax planning is also extremely critical. For example, one advisor cites the client who had $25 million he wanted to pass on. The advisor demonstrated how proper planning could shield $5.6 million from tax. The client failed to take action. Further calculations showed that procrastination came at a cost – the client was losing $80,000 for his heirs every month he failed to make a decision.
For more information, please read:
The 4 keys to preserving wealth through generations | FinancialPlanning.com