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.

Despite some holes in the planning process, 88 percent of respondents consider themselves financially secure and 70 percent feel positive about their financial security in the future, U.S. Trust says. Nearly half feel more financially secure today than they did five years ago, while one quarter feel less secure.

It adds up to a possible false sense of security, the report's authors say.

“The message for financial advisors is that if they are dealing with clients who feel better about themselves, the advisors should probe what is beneath that optimism to see if additional planning is necessary,” says Chris Heilmann, chief fiduciary executive of U.S. Trust Bank of America Private Wealth Management.

For instance, the tax law changes are not understood by many of the wealthy, according to the survey. Fifty-seven percent of respondents say pursuing higher returns regardless of the tax impact is a higher priority than minimizing taxes. However, only 34 percent of respondents feel very well informed about the impact of the tax law changes on their portfolio.

Even among those who use a financial advisor, fewer than one half feel very well informed about the impact of taxes.

Actions Belie Words

Contradictions were also revealed about the use of financial planners. Eighty-eight percent of the parents say their children would benefit from discussions with a financial professional, but only 16 percent have provided, or have plans to provide, their children with formal financial skills training.

Eight in 10 of the wealthy use a financial planner but six in 10 say the planner talks to them about one aspect of their wealth and not all of their wealth needs.

Forty-four percent have a primary financial advisor who has never established a relationship with their spouse and 69 percent have an advisor who has not established a relationship with children or heirs.

“Advisors who are only working with one spouse should be encouraged to work with married couples as couples so that both spouses have a level of understanding about finances,” Heilmann says.

Another disconnect is shown for investing in companies that follow their beliefs, which is important to many of the wealthy investors. Nearly half say they are willing to accept lower returns in companies that have a greater positive impact on society, but only one in four has reviewed his investment portfolio to evaluate its social, political or environmental impact.