Pitfalls and perils of failing to create and discuss inheritance plans
LONDON, February 7, 2017 /PRNewswire/ — Less than one quarter of high net worth Britons have a full wealth transfer strategy or plan in place, yet majority of parents with a full wealth transfer strategy in place feel confident that their wealth will go on to create a lasting legacy.
However, early education and open family conversations are key to preparing the next generation for inheritance.
When it comes to transferring and inheriting wealth, most Britons have been, and continue to be, woefully unprepared, according to new research by RBC Wealth Management conducted in collaboration with Scorpio Partnership.
Less than one-quarter (24 per cent) of high net worth Britons have a full plan in place for how they will pass their assets on to the next generation, the study found. Thirty per cent say they’ve done nothing to prepare the transfer of their estate to heirs.
Lack of preparedness?
The lack of planning appears to continue through generations as these same individuals report receiving no specific preparation themselves when they inherited their wealth. In fact, only 35 per cent of UK respondents discussed the reasons behind their specific wealth transfer plans with their parents or benefactors before inheriting assets.
“US$4 trillion(1) of wealth is expected to pass to the next generation over the coming years. Yet inheritors are being left in the dark by their parents or other benefactors, leaving them at risk of being underprepared to protect and grow that wealth for future generations,” said Tony Johnson, head Sales & Relationship Management, RBC Wealth Management – International.
“There is a cycle of unpreparedness in wealth transfer that needs to be broken. Family discussions around estate and succession planning can be daunting, meaning they are often put off until it’s too late, which may result in damaging consequences. Open conversations, financial education for heirs, and advance planning are therefore critical to protecting the future of estates and assets that UK families have built.”
The research, undertaken from June to August 2016, surveyed 3,105 individuals of wealth from the United Kingdom, Canada and the United States, who have an average net worth of $4.5 million. These included men and women, professionals, retirees and business owners, as well as benefactors and heirs.
“Despite the apparent lack of intergenerational conversations around wealth transfer, there are encouraging signs that high net worth Britons have a healthy appetite for self-education, with 64 per cent conducting their own research and 46 per cent managing their own investments to improve their financial understanding,” said Julian Washington, head, Intermediary Relationship Management, RBC Wealth Management. “This will stand them in good stead, but they would greatly benefit from building on their financial literacy, as well as their confidence levels, by pursuing more structured education from financial professionals and experts.”
Other key findings from the report include:
- High net worth Britons are the most proactive when it comes to educating themselves; 64 per cent of UK respondents conduct their own research to improve their financial literacy, compared with 55 per cent in the US and 52 per cent in Canada.
- Despite their proactive approach, UK respondents rated their confidence in financial matters at only 6.6 out of 10, so there is room for improvement.
- Experience is the best teacher. High net worth individuals are far more likely to have a wealth transfer strategy if they themselves have received an inheritance already: 32 per cent of those who have inherited wealth now have a full strategy, and 58 per cent have a will. But preparedness levels drop noticeably among those who have not yet inherited: only 17 per cent have a full wealth transfer strategy and 47 per cent have a will.
- There’s a direct correlation between preparedness and confidence levels. When parents have a wealth transfer strategy in place, they feel more confident that their children will be capable of preserving family wealth: 58 per cent of those fully prepared are confident that their fortunes will endure.
- More than half of high net worth Britons (53 per cent) say they have started to educate their children on wealth and money topics, but a surprising 14 per cent of UK respondents said they have no intention of educating their children about money at all.
- The evidence indicates that the earlier children begin learning, the more confident they will feel when making financial decisions. In fact, two-thirds of those who received a formal education on wealth matters before the age of 18 reported a high confidence rate for financial affairs, scoring themselves 7 out of 10 or higher.
- UK investors are most open to lifetime wealth transfer, with 35 per cent intending to pass on wealth this way compared to 30 per cent in Canada and just 25 per cent in the US. Meanwhile 55 per cent of high net worth Britons intend to pass on their entire wealth upon death.
In addition to the main report, RBC Wealth Management will be releasing four additional research papers throughout 2017, which will delve further into the challenges and opportunities women, small business owners, blended families and millennials face when it comes to inheritance. The full details of the report, and a survey which allows Britons to compare their answers to the findings, is available here.
About RBC Wealth Management
RBC Wealth Management is one of the world’s top five largest wealth managers*. RBC Wealth Management directly serves affluent, high net worth and ultra high net worth clients globally with a full suite of banking, investment, trust and other wealth management solutions, from our key operational hubs in Canada, the United States, the British Isles, and Asia. The business also provides asset management products and services directly and through RBC and third party distributors to institutional and individual clients, through its RBC Global Asset Management business (which includes BlueBay Asset Management). RBC Wealth Management has more than C$875 billion of assets under administration, C$580 billion of assets under management and 4,780 financial consultants, advisors, private bankers, and trust officers. For more information, please visit here.
Royal Bank of Canada is Canada’s largest bank, and one of the largest banks in the world, based on market capitalization. We are one of North America’s leading diversified financial services companies, and provide personal and commercial banking, wealth management, insurance, investor services and capital markets products and services on a global basis. We have over 80,000 full- and part-time employees who serve more than 16 million personal, business, public sector and institutional clients through offices in Canada, the U.S. and 36 other countries. For more information, please visit here.