Baby Boomer

Why Are Baby Boomer Wealth Transfers Failing?

Each year, high-net-worth families spend huge sums preparing their assets for transition to their heirs, engaging high-powered estate and tax planners who set up complex vehicles like family limited partnerships, life insurance, charitable remainder, charitable lead and various other kinds of trusts. Yet, despite the best efforts of top-notch professionals, according to Roey Williams and Vic Preisser in their 2007 book Estate Planning for the Post-Transition Period, “70% of estates lose their assets and family harmony following the transition of the estate.” Given the talent engaged, it doesn’t seem likely that the failure is due to poor design. So why do the majority of plans fail?

Q2 hedge fund letters, conference, scoops etc

Baby Boomer

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Williams and Preisser state that “The major causes of post-transition failures were discovered to lie within the family.” The unsuccessful families failed mainly because the heirs were unprepared, they didn’t trust each other and communications broke down. In other words, while high-net-worth families and their advisors pay great attention to preparing assets for transition to the heirs, very little if any attention is paid to preparing the heirs for the assets they will inherit.

Thanks to the Spectrem Group, a research and consulting group focusing on the wealthy, we have new insights into how baby boomers are preparing their heirs for the transference of wealth. Spectrem’s study, Legacy 2.0: Baby Boomers and Wealth Transfer, surveyed investors from the baby boomer generation (born 1946-1964) who inherited at least $500,000 about some of the details related to the inheritance they received. They then asked those same boomers about their wealth transfer plans to see if they had learned lessons from the past. The following, sadly, are some key findings:

  • 37% anticipated that there would be disputes among their beneficiaries when the wealth transfer took place.
  • On a scale of 1 to 100, more than one-fifth rated their transfer process at below 50 – the wealth transfer doesn’t always go smoothly.
  • Only 50% of inheritors planned to make their transfer easier for their beneficiaries.

To prepare your heirs for the eventual wealth transfer, my latest book, co-authored with Kevin Grogan, Your Complete Guide to a Successful and Secure Retirement, offers the following list of questions:

  • Do your children (and their spouses, if any) know your estate plan?
  • If not, what would make you comfortable sharing this information? With your children? With their spouses?
  • What steps should you take to address your concerns?
  • Might there be a plan to provide certain information sooner and other information at a later date?
  • Have your heirs read your will and other estate planning documents?
  • If no, when do you think is an appropriate time for them to see these documents?
  • Do your heirs know the family’s net worth, both yours and their own (if they have assets in their name)?
  • If no, when does providing this information become advantageous to you and your heirs?
  • Are your heirs in communication with your team of advisors (your attorney, accountant, insurance advisors and financial/investment advisor)?
  • If not, would it be useful for family members to meet those people, even if information-sharing is limited?
  • Have the children been involved in the formation of the investment policy statement, and are they familiar with the investment strategy, the goals and how to manage the assets?
  • If not, when might this involvement be advantageous?

Read the full article here by Larry Swedroe, Advisor Perspectives


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