Do Rich People Plan to Transfer Wealth to Their Heirs?

Photo byNatalya ZaritskayaonUnsplash

It seems like a throwaway question, right?

You’d be forgiven if your first thought is that of course people with a lot of money plan to transfer their wealth to heirs, usually their kids!

That would certainly be my first thought.

Except…

First, an Intention Isn’t a Plan

According to a First Citizens Bank wealth study conducted by Logica Research, most affluent Americans plan to transfer wealth to their heirs.

This includes 32 percent who plan on leaving the money as an inheritance, 46 percent who plan on leaving an inheritance and gifting money during their lifetime, and 16 percent who only plan to gift money while they’re alive.

Only 6 percent do not plan on transferring their wealth.

So far, no big surprises, right?

It’s when we dig a little deeper than desires and intentions we find a more mixed picture.

First, despite this overwhelming majority intention, only 1 in 3 affluent Americans who are still employed identified wealth transfer as their primary goal for retirement.

Of those planning to transfer wealth to heirs, only half have a thought-out, written plan. Almost as many, 44 percent, have thought about it but haven’t developed a plan.

Here are some details:

• 65 percent have a life insurance policy in place
• 63 percent have a will
• 40 percent have an estate plan
• 21 percent have a revocable trust
• 16 percent have an irrevocable trust
• 7 percent have none of the above

And as the saying goes, failing to plan is like planning to fail.

As the First Citizens Bank press release says, “Our study finds that affluent Americans… [are] falling short in readiness to transfer that wealth to others, despite intending to do so. Estate planning is best started well in advance of when it is needed.”

Jorey Bernstein, Bernstein Investment Consultants lists several reasons why many people fail to create a written wealth transfer plans, “While many affluent clients do have written financial plans, estate plans, and trusts to ensure the smooth transfer of their wealth to the next generation, it’s not uncommon to encounter those who haven’t formalized these arrangements. Common reasons include a lack of awareness about the benefits, procrastination, or the mistaken belief that such planning is only necessary for the very wealthy. Additionally, some clients may feel uncomfortable confronting their mortality or discussing their wealth openly. Advisors need to educate clients on the importance of comprehensive planning to avoid unnecessary tax burdens, legal complications, and family disputes.”

Second, Many Uber-Wealthy People Won’t Leave Most of Their Wealth to Heirs

According to LoveMoney, here are some famously wealthy people (in ascending order of net worth) who don’t plan to leave most of their money to their kids:

• Celebrity chef Nigella Lawson (estimated net worth of $20M)
• Musician Marie Osmond ($20M)
• News anchor Anderson Cooper ($50M)
• Actor Daniel Craig ($160M)
• Celebrity chef Gordon Ramsay ($200M)
• Rocker Gene Simmons ($400M)
• Actor Jackie Chan ($400M)
• Mick Jagger and the Rolling Stones (estimated value of their music catalog $500M)
• Singer Sting ($550M)
• Singer Sir Elton John ($597M)
• Music mogul Simon Cowell ($600M)
• Composer Andrew Lloyd Webber ($1.2B)
• Spanx founder and CEO Sara Blakely ($1.3B)
• Media mogul Ted Turner ($2.5B)
• Entrepreneur Richard Branson ($2.6B)
• Netflix founder and CEO ($4.7B)
• Producer and director George Lucas ($5.3B)
• eBay founder Pierre Omidyar ($6.3B)
• Home Depot cofounder Bernard Marcus ($9.7B)
• Steve Jobs’ widow, Laurene Powell Jobs ($14.4B)
• Jeff Bezos’ ex, MacKenzie Scott ($34.6B after having already donated $6B)
• Former mayor and media magnate Michael Bloomberg ($106B)
• Legendary investor Warren Buffet ($136B after having already donated over $56B)
• Microsoft founder Bill Gates and his wife, Melinda French Gates (combined net worth of $145 after having given over $59B)
• Google cofounder Larry Paige ($148B)
• Facebook founder Mark Zuckerberg ($175B)
• Multi-founder Elon Musk ($213B)

Why would these ultra-wealthy people (and so many others) decline to leave most of their wealth to their kids?

Here are three very valid reasons:

1. They want to leave a legacy bigger than a wealthy multi-generational family by giving most of their wealth to charity.
2. While many of these people provide top-notch educations, incredible network opportunities, seed money for businesses their kids may want to start, and enough of an inheritance to avoid money concerns (if the heirs don’t spend lavishly), they don’t want their kids to be carefree playboys (and girls).
3. Some subscribe to the “die with zero” philosophy and want to enjoy their wealth as much as they can. Others have a few million dollars and want to enjoy a luxurious retirement, which usually results in far smaller wealth transfers. Others may spend most of their wealth on long-term care and medical expenses to avoid becoming a burden on their kids.

The Bottom Line

Those at the bottom of the net worth range, or even in the middle class, often have little if anything they can leave to their kids.

Those who are wealthier, enough to have net worths of $1M to $5M (known as high net worth, or HNW), often don’t have enough left when they pass to leave millions to each heir.

It’s those with very high net worth ($5M to $30M) or ultra-high net worth ($30M and up) who could choose to leave everything to their kids, instantly transforming those heirs into multi-millionaires, but often prefer to donate most of the money.

Though I doubt you, my reader, are in this rarefied group (I certainly am not), I think we can agree that leaving most of a fortune of tens of millions to hundreds of billions of dollars to charity serves both society and any kids far better than leaving nothing to charity and turning those kids into UHNW individuals without ever having worked for that wealth.

Dillon Kenniston, Founder of REWealth Financial Planning agrees, “It’s common to see wealthy clients and prospects without written estate plans when they first arrive. Understandably, everyone wants to put death on the back burner. But having a written plan in place can be an act of love, whether you’re leaving assets to heirs or not. One of the most important features of a written estate plan is that it lets you make your intentions clear. Family is wonderful, but things can get messy when a lot of money is involved. So regardless of your wealth transfer intentions – to heirs, charities, or otherwise – it’s important to have everything written down. For those who intend to leave assets to heirs, it’s often because they want to set their heirs up with opportunities they didn’t have. It’s intuitive for many clients why they normally wouldn’t want their 13-year-old to inherit a pile of money the moment they reach the age of majority. But they do want their heirs to have an easier time than they had. For those who don’t intend to leave assets to heirs, it’s often because they feel strongly about the importance of a strong work ethic. They value being self-made and want to see their children rise to life’s challenges. These people feel that leaving too much money for their kids can make that harder.”

If you do intend to leave wealth to your heirs, you’d be well advised to craft a written plan and use tools such as estate plans, insurance policies, trusts, etc. Most of these are best done with professional help.

About the Author

Opher Ganel, Ph.D.

My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.

Disclaimer: To make Wealthtender free for readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a conflict of interest when we favor their promotion over others. Learn more. Wealthtender is not a client of these financial services providers.