Individuals failing to plan for transfer of wealth to next generation

Isadora Duncan once said, “the finest inheritance you can give to a child is to allow it to make its own way, completely on its own feet”. While many people will agree with this sentiment, it does not allow for the fact that a very significant sum of money, amounting to trillions of dollars globally, is due to pass into the hands of the next generation in the coming years in what amounts to the largest wealth transfer in history.

Given the anticipated magnitude of wealth movement, and the number of new multi-millionaires that will be created through inheritance, it should be safe to assume that careful plans are being laid for the passing on of this wealth to heirs and family.

However, in a recent survey conducted by Scorpio Partnership in alliance with NPG Wealth Management in Europe, it became apparent that this is not always the case.

In a survey put to 600 wealthy clients across Europe, with fortunes between €1 - €10m, although 45 per cent of respondents felt it important to have a wealth transfer strategy in place, only 30 per cent had actually implemented one.

Surprisingly almost half (43 per cent) had made no preparations at all - not even a will.

The UK market suggests that wills remain the preferred method of handing wealth to the next generation. Fifty-two per cent of British respondents have a will in place although only 23 per cent have a full wealth transfer strategy drawn up. The ever efficient respondents from Germany have been the most proactive in putting a strategy in place with 46 per cent having drawn up a full plan.

Interestingly, despite the need for older clients to have their affairs organised, it seems the under 35s have given the subject most consideration, perhaps reflecting a more open attitude to the discussion of wealth and astute planning.

Conversely the older generation, those aged 50 and above, place the most importance on having a strategy in place, even if they have not acted on this belief yet.

The main driver for wealth transfer planning is tax efficiency and gifting is the most commonly used method at present although for the less wealthy, a life insurance policy is the favoured route.

So where is the investment professional when it comes to advice? Just 27 per cent of respondents across Europe keep their wealth professional fully involved when making wealth decisions. In contrast, 52 per cent keep their spouse fully informed in the management of their wealth.

Across Europe, the younger generation appear to be better informed and prepared in relation to inheritances as well. Overall, the advantages of inheritance planning need to be raised, especially as they relate to the greying generations. Inheritance planning can be optimised by use of a life assurance policy, which 66 per cent of surveyed respondents had already taken out. However, they often underestimate the potential such policies possess.

It appears there is an opportunity for much greater engagement when it comes to advising clients on their financial planning decisions and the strongest need is amongst the under 35s who seek guidance and support in making the right decision, with nearly 50 per cent of those surveyed seeking professional support.

It is evident that client relationships can be strengthened through increased guidance on inheritance planning. In doing so, they may well secure the trust of the next generation of clients and retain that wealth as it passes into new hands.

Caroline Burkart, is a director at wealth management think-tank Scorpio Partnership