Proactive communication key to smooth generational wealth transfers: report


High-net-worth individuals seeking the best outcomes for shifting capital to those next in line are being urged to speak up.

When it comes to transferring generational wealth, parties passing on sizable assets should be proactive in cementing plans, according to experts at American investment banking firm Raymond James. A new survey conducted by the company arrives alongside the message that without proper communication, families risk losing a significant swath of potential inheritances to taxes.

“The absence of effective planning can lead to a greater tax implication on the wealth transfer,” said Will Lucius, chief trust officer at Raymond James Trust, St. Petersburg.

“In particular, for high-net-worth and ultra-high-net-worth individuals (HNWIs) whose estate may be subject to a federal estate tax liability, the absence of planning could cause a taxable event with a range up to 40 percent,” Mr. Lucius said. “As the survey indicated, nine in 10 respondents listed tax efficiency as a stated goal in their wealth transfer plan, but only 26 percent have consulted tax professionals.

“This should be alarming insofar as there may be significant changes to the federal estate tax in the next several years.”

Raymond James’ “Does Your Wealth Have Momentum” survey was conducted in collaboration with American business intelligence company Morning Consult between Nov. 18 and Nov. 24, 2022. A total of 1,000 American investors with $500,000 or more in investable assets responded to the inquiry.

Data points from the Raymond James Trust survey. Image credit: Raymond James
Communication is key

According to the respondents and the survey’s publisher, transparency among affluent individuals during the transition planning process is necessary.

Among those polled, 71 percent said “proactive communication of wealth transfer plans would be important to them if they were receiving an inheritance,” with another 45 percent claiming to be “extremely transparent” with their heirs.

A further 87 percent stated that “family harmony” is important to maintain during these discussions, necessitating honesty between all parties involved, though four of every five respondents admitted they have only been “somewhat transparent” with their descendants.

“For many, an ideal scenario would be to take a set dollar amount and divide it equally among heirs, but that’s rarely the case,” said Joe Weaver, president of Raymond James Trust, in a statement.

“With illiquid assets to consider such as property, collectibles, businesses, heirlooms and so on, the task of dividing assets equitably becomes more complex,” Mr. Weaver said. “This is where discord in the family can begin if a client’s intentions aren’t clearly communicated.”

Between 66 and 84 percent of respondents have a plan in place, the range split between those who do not have a financial advisor and those who do, respectively.

Once a plan is discussed, taxes are the next, and arguably most important, aspect to consider.

Nine out of 10 of those surveyed hold tax efficiency as an important aspect of their wealth transfer strategy, yet just over a quarter of them have consulted a professional in the field.

With more tax measures passing annually (see story), HNWIs should be increasingly on the lookout for ways to “maximize their legacy,” as the report states.

“The results continue to trend as they have historically regarding wealth transfer and estate planning underscoring the importance that a trusted advisor can play in bridging the gap between the client’s desired goal and actually implementing an effective plan,” Mr. Lucius said.

“The majority of respondents working with an advisor have a documented plan in place with over 90 percent feeling confident in that plan,” he said. “However, it is incumbent on advisors and other professionals to continue to reiterate to clients the impact that the absence of planning can have on a smooth transfer of wealth.”

Lavish living

Despite calls to rally for wealth to be left for one’s successors, Raymond James Trust shares that a substantial portion of those surveyed plan to leave money behind for charitable endeavors.

Fifty-four percent plan to leave a “positive philanthropic impact,” with 10 percent vowing to at least a quarter of their fortune to charity.

On top of over half of the report’s interviewees planning to donate a chunk of their change when the time comes, inheritances could be shrinking for other reasons.

More than 100,000 HNWIs moved house this year in fear of a global recession (see story), and while the number of wealthy individuals who own multiple properties is also surging (see story), 81 percent say they would rather splurge on another vacation or house than pad their descendants’ inheritance funds, per San Francisco-based property broker Pacaso’s latest Second Home Attitude Report (see story).

Its authors peg this increase in spending to a post-pandemic embrace of the mantra “you only live once,” one which seems to be hitting home for those with generous savings balances.

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