Tag Archives: Ethical Wills

Inter generational wealth transfers

Preparing for wealth transfers in the trillions – a strategic imperative

It’s a lot to lose

The looming inter generational wealth transfer may receive much attention in the news but how much real preparation is taking place in the financial services market for this transfer? Not reaching out to the spouse, or children & grandchildren (heirs) of existing clients presents a real risk. Bank of America in 2011 noted that assets transferring to a spouse move to another firm 55% of the time while assets transferring to children move as much as 98% of the time.  Bank of America aptly noted the strategic imperative of reducing the risk of inter generational wealth transfers; “a very real risk of long-term erosion to their business

How much ?

Life expectancy, rising health care costs , changing tax legislation and increasing debt levels aside, the estimated value of Inter generational wealth transfers over the next many years is in the Trillions and comes by way of 2 different phases.The so-called “Great Transfer” is an estimated $17 Trillion + that is expected to shift between the “Greatest” generation to Baby boomers. A 2nd shift  (“Greater transfer“) is another $42 Trillion + that is expected to move from Baby Boomers to Generation X.  Added together or alone, these transfers present a high level of risk for financial advisors/firms to lose assets. An estimated $30 Trillion of this total of $59 Trillion is expected to shift in the next 30 years.  During the peak of the wealth transfers taking place (between 2031 to 2045) it’s estimated that 10% of the Country’s wealth will change hands every 5 years.

Where’s the risk?

Estimates vary based a lot on wealth and income but most studies indicate that too few families (less than 35%) have discussed estate planning with their primary financial advisor. Why don’t more families take the time to discuss and prepare? Certainly, the myth of estate planning only being for the wealthy continues to prevail but so does procrastination and the ‘discomfort” of the topic generally.

At the same time, why are financial advisors not more actively engaging with clients & their heirs about estate planning matters? Some evidence suggests that most advisors happen to be Baby boomers themselves and feel that they lack effective ways to both reach out to the children & grandchildren of their clients and engage proactively with clients to establish multi generational wealth transfer plans. That’s not good (!) Estate planning discussions provide great value to clients, their families and financial advisors.

Engage/Do Good/Enhance Value/Retain

Research shows that at least 60% of inter generational wealth loss is caused by poor communication and a lack of trust within the family. Encouraging clients to talk with their family members about their expectations and values before the estate planning process begins is a meaningful way to provide value. We’ve written about the idea of Ethical wills over and above traditional will planning in other posts on this blog. (We provide a place for both in LegacyTracker)

Coordinating family meetings provides a great way for advisors to introduce themselves to the next generation and show that they care. Clients appreciate an advisor that cares and demonstrates customer advocacy on a regular basis & so will the families of those clients.   By offering a technology solution that helps clients simplify, safeguard and share their important financial, legal and estate information, financial advisors and firms can demonstrate customer advocacy to the entire family. Being organized will make a real difference for an entire family in enhancing their level of emergency preparedness.  Our branded solution can ease the potential burden on a family should an emergency arise; reducing the risk of additional grief, delay or cost that often comes when families are unprepared.

LegacyTracker can also help facilitate important discussions between both Advisors & Clients as well as between Clients & their family members about important estate planning matters including final wishes. Such discussions will enable Clients and their families to more proactively prepare for the next generation & and will enable financial advisors and their firms to show additional value.

That’s a core mission behind LegacyTracker –  providing a way for Financial Advisors/Firms to reach out to their Clients/Families which also helps those Financial Advisors/Firms to ultimately hold on to assets that might otherwise move. LegacyTracker is also a technology solution that will have particular appeal to younger clients or family members who are on the look out for a technology to make their lives less complex & more mobile.

Ethical Wills: An important part of a Legacy & LegacyTracker

 

The results of a 2012 Allianz Life Insurance Study may surprise you. 86% of Baby boomers (age 47-66) &  74 % of elders (age 72+) agree that family stories are the most important aspect of their legacy, ahead of personal possessions (64 % for boomers, 58% for elders) and the expectation of inheritance for financial well-being           (9% for boomers, 14% for elders).

These results do not vary greatly from their study of 2005, that indicated that family values and life lessons were indeed the most important part of legacy before financial assets. That study outlined the 4 pillars of legacy as being 1) Values and Life lessons 2) Personal Possessions of emotional value 3) Wishes and Directions to be fulfilled and 4) Financial Assets/Real Estate

An ethical will captures the non financial part of a legacy. which make for, alongside the financial assets leaving a legacy as opposed to an Inheritance. Ethical Wills are the intangible form of a legacy that can make a real difference to heirs and that’s perhaps why they are being talked about more often in recent years as part of overall wealth transfer planning. An ethical will is not legally binding or enforceable as opposed to a will or living will; it is more concerned with the sharing of principles, values , life lessons, family histories and guidelines that an individuals may want to be pass along to heirs. It can be an informal letter or a long autobiography or a book, or even a video.

A good read on the subject is by Susan Turnbull of Personal Legacy Advisors in her book, The Wealth of your Life: A step by step guide for creating your ethical will.  Ms. Turnbull’s book provides an introduction to the concept of an ethical will and lays out a 5-step path for creating a written document or recording.  Her website is also a valuable resource

From Ms. Turnbull:

“It is a heartfelt expression of what truly matters most in the client’s life….Whether a client actually creates an ethical will or not, it is a measure of value of recommending one…An ethical will opens a door for an advisor to start a bigger conversation about estate planning”

It seems reasonable that Financial Advisors who open up conversations about ethical wills may find that they are then able to better serve the next generation of their existing clients. It provides an opportunity to reach out to that next generation and reduce the risk that comes with the unprecedented intergenerational wealth transfer that has already started while doing “Good” for clients.

Overall, I think most of us understand, that we are all worth more than the money we leave behind and that’s why we have included a place for Ethical Wills inside LegacyTracker

Connect with us to find out about all of the important parts included in LegacyTracker

Here’s a sample and some additional information in the form of FAQ from John Kador’s article on Ethical Wills from wealthmanagement.org 

ethical-faq

ethical-exercises