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Study Finds Parents Worry a Large Inheritance Can Do More Harm Than Good

Merrill Lynch Private Banking and Investment Group Explores When, Why and How the Wealthy Pass on Assets and How Much Is Too Much to Give

Thursday, April 30, 2015 9:00 am EDT

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"Many wealthy families shy away from discussions about wealth, and their avoidance can impede the very real and important process of defining priorities for wealth and giving"

The great transfer of intergenerational wealth now underway raises concerns in some wealthy families that it could do more harm than good for the next generation, according to a new report published today by Merrill Lynch’s Private Banking and Investment Group.

The report, “How Much Should I Give to My Family? On the risks and rewards of giving,” is based on findings of a nationwide survey of 206 high net worth parents and is the third in a series of papers by the firm on family wealth sustainability.

The survey found that a majority (91 percent) of people plan to leave the lion’s share of their wealth to family members, motivated by a desire to positively influence the lives of loved ones. Yet the results indicate that many see significant risk in passing on wealth without context, conversation, guidance or accountability. Parents surveyed note that fear of disrupting family harmony and a lack of clarity rank high on the list of reasons not to discuss giving.

Key findings include:

  • Nearly half (46 percent) of high net worth individuals are concerned about giving too much money, and only about half are confident that the distribution of their assets will have the intended impact. The greater their assets, the greater the level of concern.
  • When asked at what point an inheritance or gift is considered too much, 46 percent said “when the money creates a disincentive to achieve one’s full potential.” Some 28 percent said it is when the recipient can indulge in a perpetual life of leisure.
  • More than half (52 percent) of all respondents and 42 percent of those with more than $10 million in assets intend for virtually all of their remaining assets to be distributed after they are gone, with their wishes outlined in a will or trust and estate plan.
  • While more than six in 10 (63 percent) say they have documented or defined plans to pass financial assets to others, only 29 percent have had a conversation with the recipients. Far fewer have articulated their intended purpose via letter (16 percent), a values statement (3 percent), or video (2 percent).

How much is too much?

The appropriate amount of money to give and the best model for giving vary depending on the recipient, according to the report. While many wealth creators want to be fair and equitable in the distribution of their assets, their concern about giving too much is often associated with how it might affect a specific person of group of people, such as a child with special needs or a family member struggling with addictions.

  • One-quarter of respondents consider equity and/or fairness the top consideration when deciding how much to distribute assets among their heirs -- yet nearly 40 percent say they want to be fair to everyone.
  • Two-thirds (66 percent) of survey respondents show at least some degree of concern about the negative impact of gifted assets on a particular individual or group of individuals.

“Too often, people think only about dollars amounts, not impact, when deciding how much is too much to give,” said Michael Liersch, head of behavioral finance and goals-based development at Merrill Lynch Wealth Management. “There is no silver bullet answer or one-size-fits-all approach to gifting assets. The process of meaningful, intentional giving, whether to family, friends or philanthropy, should be highly personalized. It requires honesty, humility and a willingness to face this all-important topic head on.”

The paper outlines the framework for a successful, personalized giving model and five factors of decision-making about how much and to whom to give. In addition, the paper takes an in-depth look at the financial and emotional implications of gifting assets during one’s lifetime or after they are gone.

The report suggests that the idea of giving too much is of particular concern for people who have not clearly identified the purpose of their wealth or defined their values and intent for passing it on.

“Many wealthy families shy away from discussions about wealth, and their avoidance can impede the very real and important process of defining priorities for wealth and giving,” said Stacy Allred, a managing director and wealth strategist in the Merrill Lynch Private Banking and Investment Group and leader of Merrill Lynch’s Center for Family Wealth Dynamics and Governance™. “Unfortunately, discussions around wealth tend to occur only at big life junctures, such as an illness or death, when it is often too late to influence the way wealth is distributed, perceptions of the gift by its recipients or how they use it.”

The survey found:

  • The top three events that trigger a dialogue about wealth transfer are: a health issue (56 percent); death of a family member or friend (43 percent); or an initial discussion with a professional advisor (34 percent).
  • The primary reasons for not talking with family about giving are: (1) simply not thinking about it, and (2) concern about disrupting family harmony.

Insight from the research and discussions with clients indicate that there is a higher degree of confidence about giving decisions by people who involve a trusted advisor in formally structuring giving strategies, with guidelines and, in some cases, restrictions and accountability.

A full copy of the report and detailed research findings are available at www.pbig.ml.com/howmuch, along with the entire Merrill Lynch Private Banking and Investment Group series on sustaining wealth.

Methodology
The nationwide survey of 206 U.S. consumers with $5 million or more in investable assets was conducted in October 2014 by Phoenix Marketing International, an independent market research firm, on behalf of Merrill Lynch’s Private Banking and Investment Group. All data were tested for statistical significance at a 95 percent confidence level.

Merrill Lynch Global Wealth Management
Merrill Lynch Global Wealth Management is a leading provider of comprehensive wealth management and investment services for individuals and businesses globally. With 14,183 Financial Advisors and over $2 trillion in client balances as of March 31, 2015, it is among the largest businesses of its kind in the world. Merrill Lynch Global Wealth Management specializes in goals-based wealth management, including planning for retirement, education, legacy, and other life goals through investment, cash and credit management. Within Merrill Lynch Global Wealth Management, the Private Banking and Investment Group focuses on the unique and personalized needs of wealthy individuals, families and their businesses. These clients are served by more than 150 highly specialized Private Wealth Advisor teams, along with experts in areas such as investment management, concentrated stock management and intergenerational wealth transfer strategies. Merrill Lynch Global Wealth Management is part of Bank of America Corporation.

Source: Bank of America Corporation. Merrill Lynch Global Wealth Management (MLGWM) represents multiple business areas within Bank of America’s wealth and investment management division including Merrill Lynch Wealth Management (North America and International), Merrill Lynch Trust Company, and Private Banking and Investment Group. As of March 31, 2015, MLGWM entities had over $2 trillion in client balances. Client Balances consists of the following assets of clients held in their MLGWM accounts: assets under management (AUM) of MLGWM entities, client brokerage assets, assets in custody of MLGWM entities, loan balances and deposits of MLGWM clients held at Bank of America, N.A. and affiliated banks.

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