23% of U.S. Wealthy Do Not Trust Next Generation to Safeguard Wealth, New Report Reveals

-- 36% of high net worth families feel wealth leads to conflict

-- Does money equal happiness? Report finds earned wealth is the key

Nov 14, 2011, 07:00 ET from Barclays Wealth

NEW YORK, Nov. 14, 2011 /PRNewswire/ -- When it comes to passing on wealth, nearly one-quarter (23%) of U.S.-based high net worth individuals do not trust their children or stepchildren to protect their inheritance, according to the latest report in the Barclays Wealth Insights series. Globally, over one-third (35%) of wealthy individuals feel this way.

The report, The Transfer of Trust: Wealth and Succession in a Changing World, which launched today is based on a global survey of more than 2,000 high net worth individuals in 20 countries and provides an in-depth examination of wealthy investors' attitudes towards wealth transfer and succession planning, as well as insight into what they believe the future holds for the next generation. It also looks at how wealth can act as a double-edged sword, leading to distrust and conflict.

Chris Johnson, Director, Wealth Advisory, Barclays Wealth says: "Passing on wealth, values, and a legacy is at the heart of financial planning. It is clear that with wealth comes an increasing complexity of choice especially with respect to intergenerational transfer. In some cases, this can result in concerns about trust or even intrafamilial conflict. Understanding in advance the options for succession planning and seeking professional advice can help address these fears and provide confidence that one's wealth will be wisely managed in the future."

Wealth, happiness, and family dynamics

Inheritance and wealth transfer inevitably raise questions about their impact on the lives of recipients, both financially and emotionally. Parents want to pass on material wealth to their children, as well as a roadmap for a happy life. The report reveals some interesting paradoxes about inheritance, succession, and contentment.

While most individuals are skeptical of the idea that money buys happiness, the report confirms a positive relationship. Interestingly, there is a stronger correlation between earning money and contentment – that actually earning wealth, rather than inheriting it, seems to boost financial happiness.  

However, an unfortunate drawback of wealth is its ability to cause conflict – and in the context of succession – family conflict. The report reveals:

  • 36% of wealthy Americans surveyed have personally experienced family disputes caused by wealth
  • 21% of them believe that wealth places an unnecessary burden on the next generation  

Mr. Johnson, comments: "This is an increasingly common concern among our U.S.-based clients. It seems that wealth has the ability to act as a double-edged sword, providing happiness, as well as leading to family distrust and discord. The most effective approach to avoiding such conflict is to plan ahead with the help of an impartial advisor with relevant expertise."

High net worth individuals may be apprehensive about the prospect of passing considerable wealth down to children and the impact on their motivation to make their own mark in life. This is a common rationale for establishing a trust to manage distributions, while still allowing a child access to substantial inheritance. Wealthy individuals may even consider incorporating an "incentive clause" into a trust structure.

Despite the potential conflicts associated with succession and wealth, the report shows that high net worth individuals remain committed to passing on their assets to the next generation, with only 3% of U.S. respondents believing that this should not be the case. However, over two-thirds (68%) of American respondents say that they require a great deal of professional advice when deciding on an inheritance plan for their children/stepchildren.

Prenuptial agreements

There are also instances complicated by sensitivities related to prenuptial agreements. While over three-quarters (76%) of wealthy Americans may think that a prenuptial agreement is important for the protection it affords, only 11% actually have one in place. Obtaining a prenuptial agreement from a loved one is not necessarily the easiest conversation to approach – whether driven by the individual getting married for the first or second time or by a parent whose wealth is being passed down. For this reason, many wealthy individuals consider the alternative of implementing 'lifetime trusts' for the benefit of their children.  Such trusts act as a forced prenuptial agreement as the assets passed down from a parent remain in a trust forever.  In this instance, assets held within a "lifetime trust" are protected from characterization as a "marital asset."

Revisions of a will primarily triggered by tax efficiency in the U.S.

There are a number of different ways to transfer wealth to the next generation, but one of the most common instruments used is a will, and nearly all (94%) wealthy Americans currently have one in place. Yet, once a will is in place, it is important not to have an attitude of "set it and forget it." Quite the opposite actually, and most wealthy Americans surveyed agree. Half (50%) of U.S. respondents have revised their wills at least once and over one-third (35%) have revised them three or more times.

Globally, the primary trigger for a will revision is increase in wealth (19%) while, in the U.S., the primary reason is tax efficiency/planning (23%).

Money with Personality and Family Values

The "inherited dollar" seems to be treated differently than the "earned dollar." High net worth individuals have a tendency to want to preserve inheritance money and can be reluctant to spend it or invest it in what they perceive to be risky financial instruments. In fact, in some cases, individuals will keep their inheritance separate from wealth they earned themselves.

This preservation instinct is moderated by the personality and lifestyle of the deceased and the nature of the relationship. As a result, this money is viewed as having "personality." Wealthy individuals' views on whether and how to transfer wealth are in part influenced by their values, which are often learned from their own parents.

The report found:

  • 66% of U.S. respondents said their values were very similar to their parents
  • 82% of wealthy Americans are more likely to allocate assets to children whose values are most similar to their own

Mr. Johnson says: "For wealthy parents, setting up a philanthropic vehicle is one method of passing down their value systems to their children. Not only are their children given the occasion to participate in investment management discussions and decision making associated with the trust or foundation, but it also provides the opportunity to become involved in a charitable initiative."

About Barclays Wealth

Barclays Wealth is a leading global wealth manager, and the UK's largest, with total client assets of $273bn (170bn pounds Sterling) as of 30 June 2011. With offices in over 20 countries, Barclays Wealth focuses on private and intermediary clients worldwide, providing international and private banking, investment management, fiduciary services and brokerage.

Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate and investment banking and wealth management with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 145,000 people. Barclays moves, lends and invests money for customers and clients worldwide

For further information about Barclays Wealth, please visit our website www.barclayswealthamericas.com

Barclays Wealth is the wealth management division of Barclays Bank PLC, functioning through Barclays Capital Inc. in the United States. Barclays Capital Inc., an affiliate of Barclays Bank PLC, is a U.S. registered broker-dealer and investment advisor, regulated by the U.S. Securities and Exchange Commission. The registered office of Barclays Capital Inc. is 745 Seventh Avenue, New York, NY 10019. Barclays Bank PLC is registered in England and Wales (registered no. 1026167) with a registered office at 1 Churchill Place, London, E14 5HP, United Kingdom. Barclays Bank PLC is authorized and regulated by the Financial Services Authority. Member SIPC.

SOURCE Barclays Wealth