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Modern American family dynamics complicate wealth management, says US Trust survey


Family dynamics add complexity to money issues already heightened in families with increased wealth, according to the 2014 US Trust Insights on Wealth and Worth survey.

Based on a nationwide survey of 680 US high net worth individuals with USD3 million or more in investable assets, the annual study finds that changing family structures, multi-generational and extended family circumstances, evolving gender roles, and generational views on investing and use of wealth are challenging traditional approaches to wealth planning.
US Trust found that family dynamics, including change in family structures and roles among men, women and multiple generations affect both immediate and extended family members.
The perspective of mine, yours and ours is the new reality of wealth management. Nearly half (46 per cent) of wealthy families in the study have experienced a change or disruption in the family dynamic, following a divorce, loss of a spouse or partner and subsequent remarriage and blending of families.
In modern families, women are playing an active role in wealth planning and decision-making as they make significant contributions to family wealth. More than half (52 per cent) of women came into their marriage or relationship with financial assets equal to or greater than their spouse or partner, and one-third (33 per cent) of women are now the primary income earner or contribute equally to household wealth.
While families grow more complex, so do their challenges. A concerning trend among modern high net worth families is assuming financial responsibilities for family members and encountering family circumstances that they are, in many cases, unprepared to handle.
Six in 10 (59 per cent) wealthy people have provided substantial financial support to adult members of immediate and/or extended family, including siblings, parents, children, nieces and nephews. Yet few (three per cent) have a financial plan that accounts for this.
The top five circumstances that affect overall family financial well-being include: divorce, addictions, untimely death or disability of a primary income earner, medical crises and disagreements over inheritance or distribution of family assets.
Despite the prevalence of medical crises, and risk it represents to wealth, only 38 per cent of married couples have a financial plan to address the cost of long-term care for both partners. Only one in 10 have a financial plan that accounts for the long-term care needs of aging parents.
“Families today come in all shapes and sizes and the wealthy are not immune to the ripple effect of extenuating circumstances on overall family financial well-being,” says Keith Banks, president of US Trust. “While these circumstances are not unique to the wealthy, they can complicate an already complex wealth planning process. Traditional approaches to wealth management need to evolve and incorporate the diverse perspectives, roles and contemporary needs of the modern family.”
The changing dynamic of the modern American family coincides with the ongoing transfer of more than USD15 trillion in financial and non-financial high net worth assets over the next two decades. The majority of wealthy people today (78 per cent), and particularly baby boomers, achieved financial success through creating it, versus inheriting it, and at least half (52 per cent) grew up in middle-class or lower-middle-class households.
Their children and heirs are more likely to grow up wealthy and are the current and future beneficiaries of substantial family wealth. More than half (56 per cent) of surveyed millennials (ages 18 through 33) are second- or third-generation wealthy, and nearly half (48 per cent) already have received a financial inheritance. However, the vast majority of wealthy parents (96 per cent) think children are not mature enough to handle family money until they are at least age 25.
Possibly the source of this concern, only four in 10 (38 per cent) wealthy parents with adult children over the age of 25 have fully disclosed their financial status to their children, and only 38 per cent of wealthy parents strongly agree their children will be well-prepared to handle the inheritance planned for them. Parents of children of all ages appear open to rectifying this disconnect, as the vast majority (92 per cent) believe their children would benefit from a discussion with a financial professional.
“We know from our long history of working with wealthy families, and our survey confirms, that effectively transferring wealth and keeping family relationships intact is of utmost importance,” says Chris Heilmann, chief fiduciary executive at US Trust. “Even the more complex issues that modern families face can be managed with careful planning and efforts to build the financial skills and values future heirs need to be good stewards of family wealth.”
In addition to receiving their wealth under different circumstances, millennials also plan to put it to use in distinctively different ways, shedding new light on the direction and purpose of the substantial amount of family wealth changing hands in the coming years.
Two-thirds (66 per cent) of millennials say that their investing focus is on meeting long-term goals, and their approach is innovative, individualized and opportunistic.
Three-quarters (75 per cent) of millennials consider the social and environmental impact of the companies they invest in to be an important part of investment decision-making.
Nearly eight in 10 (79 per cent) millennials feel strongly that private capital from socially motivated investors can help hold public companies and governments accountable for their actions and results.
Eight in 10 (81 per cent) millennials either own or are interested in owning tangible assets such as land, real estate and timber, and they are more interested than any other age group in using private equity and hedging strategies.
Millennials are most likely to describe themselves as opportunistic investors, and they, more than any other age group, are using credit to make strategic and opportunistic investments including starting or growing a business.
In general, the wealthy feel strongly about putting their financial success to work in a way that is meaningful and will create positive social change. They rank “giving back to society” among the most important uses of their wealth, second only to providing for their own families.
Nine in 10 (89 per cent) wealthy Americans say they would help foster greater income and opportunity in the country primarily by financially supporting programs that support employment and education opportunities, paying more in taxes, creating jobs, and/or supporting legislation to reduce regulation and taxes on small business and entrepreneurs.
“Most of the wealthy today are self-made and want their legacy to matter,” adds Banks. “They want to make a meaningful and positive contribution that will benefit their families, the companies they own, the communities they live in and society overall, but many lack the proper guidance and tools given the complexity of their lives. At US Trust, our work with clients and the robust family services we offer reflect our understanding of how needs and expectations change as circumstances and the family dynamic evolve.”

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