Many wealthy individuals do not have adequate plans for passing on their wealth and may have a false sense of financial security, according to a U.S. Trust survey released today.
In addition, wealthy individuals have not taken the costs of their family's health needs into account and have conflicting views about investment risks, according to the report.
“We need to shift the conversation about wealth management to these important topics and expand their understanding of risk,” says Keith Banks, president of U.S. Trust.
In compiling the report, U.S. Trust 2013 Insights on Wealth and Worth, U.S. Trust Bank of America Private Wealth Management surveyed 711 individuals with at least $3 million in investable assets. The sampling was evenly divided among those with $3 million to $5 million in wealth, $5 million to $10 million and $10 million and above.
Although most have a will, the survey found 72 percent of respondents do not have a comprehensive estate plan, including 84 percent of those under the age of 49, and 65 percent age 49 and older. Fifty-eight percent have not named a durable power of attorney to make financial decisions. In addition, 55 percent have never formed a trust.
Two thirds have organized their personal and financial records in one place, but 46 percent have not informed the executor of their estate about how to access the records. At the same time, 63 percent have not established who should have access to passwords and digital accounts.
Growth Trumps Protection
Investment risk is less of a concern than it was a year ago. Sixty percent now place a higher investment priority on growing than preserving assets. This is a reversal since last year, when 58 percent were focused on preservation. But at the same time, respondents are nearly twice as likely to say that lowering risks is a higher priority than pursuing higher returns. About half say their current asset allocation accurately reflects their risk tolerance; however, only 45 percent feel they have a good understanding of their risk tolerance.
A little more than half say they have substantial amounts of funds in cash accounts, but only 6 percent say they are content to leave it there.
Health care costs, including long-term care costs, have not been fully taken into account, says U.S. Trust, and may constitute the hidden risk to family wealth. Less than half have a financial plan that accounts for long-term care needs that they and their spouse might need, and only 18 percent of those whose parents are still living have a financial plan that accounts for the long-term care cost the parents might need.