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The Importance of Effective Estate Planning

Two recent studies have given an interesting insight into how prepared families are when it comes to transferring and inheriting wealth.

Preparing for the Transfer of Wealth

The first such study, by RBC Wealth Management, looked at high net worth families in Britain, Canada and the US. When it came to Britain’s wealthy families, it found that under a quarter (24%) have a comprehensive plan in place for how their assets will be transferred to the next generation. Worryingly, as many as 30% say they have yet to do anything to prepare for the transfer of their estate to their heirs.

“US$4 trillion of wealth is expected to pass to the next generation over the coming years,” commented Tony Johnson, head of Sales & Relationship Management, RBC Wealth Management – International. “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.”

“There is a cycle of unpreparedness in wealth transfer that needs to be broken,” he added. “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.”

Wealth Transfer Strategies

The report also found that:

  • High net worth individuals are far more likely to have a wealth transfer strategy if they themselves have received an inheritance already: 32% of those who have inherited wealth now have a full strategy, and 58% have a will. But preparedness levels drop noticeably among those who have not yet inherited: only 17% have a full wealth transfer strategy and 47% have a will. 
  • UK investors are most open to lifetime wealth transfer, with 35% intending to pass on wealth this way compared to 30% in Canada and just 25% in the US. Meanwhile 55% of high net worth Britons intend to pass on their entire wealth upon death.

Open Conversations about Estate Plans

A second study, this time from the US, revealed how difficult it can be for families to have a conversation about estate plans.

The research by Fidelity Investments® found that 90% of parents and their adult children acknowledge it's important to have frank conversations about estate plans and wills, but in reality these discussions don’t often take place, or at least not in a meaningful way. In fact, while 70% of parents surveyed believe they've had detailed conversations with their children on the subject, more than one-half of their children claim this isn't the case.

"The study also reveals that more than two-thirds of adult children and their parents disagree about the appropriate time to initiate conversations about the parents' finances. When it comes to legacy planning, generally speaking, the sooner the better," said Kevin Ruth, Head of Wealth Planning and Personal Trust at Fidelity Investments. "Failing to have an estate plan in place can lead to significant family confusion once a beloved family member passes. Too often, it may result in costly mistakes or the wishes of a loved one's estate and legacy plans going unfulfilled."

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