Posted March 1st, 2005

Study Finds that Many of the Wealthy are Unprepared

A recent study by PNC Advisors, a leading wealth management group, reveals what many may find hard to believe—that wealth can cause more problems than it solves. Despite the business and market savvy that helped them amass their fortune, some of America’s wealthiest are apparently unable or unwilling to secure the future for themselves and their loved ones through effective estate planning. Many have not even executed a will, and the vast majority feel overwhelmed with the personal and philanthropic responsibilities that wealth can bring.

These findings highlight an important fact for gift planners—that many of the wealthiest Americans have yet to plan for the ultimate distribution of their assets. Many of America’s philanthropic dollars are thus unspoken for, and gift planners should take steps today to help assure maximum benefit for their cause.

The details of the study

Conducted in late 2004, this nationwide study surveyed 792 affluent Americans, defined as those with at least $500,000 in assets. Of that group, nearly 500 hold at least $1 million in investable assets, and 148 have investable assets of $5 million or more. All of those included in the survey have household incomes of at least $150,000 or total assets of at least $1 million.

Those surveyed were asked about a number of issues that affect people with sizable assets, ranging from the emotional and personal impact of wealth to the complications wealth can cause in personal relationships and financial planning.

Tomorrow and tomorrow and tomorrow

One of the most startling finds of the study is that many of the wealthiest of those surveyed—those with $10 million or more in investable assets—have not completed even the most basic estate plans. A surprising 40% do not have a will or trust in place, despite the obvious benefits to those they love.

Why would these individuals leave something that important to chance? Most of those surveyed (56%) list procrastination as the primary reason. Others (12%) admit to a certain reluctance in facing their own mortality, while 5% feel that they do not have enough money to warrant a will.

In addition, most of those surveyed (58%) have never discussed their estate plans with their loved ones. While many plan to have this important discussion eventually, almost one in four (23%) feel no need to share their intentions with family members. For still others (14%), the need to discuss their plans with others has never crossed their minds.

Caring for loved ones

This lack of planning comes as a surprise given the fact that those surveyed report feeling an overwhelming responsibility to care for those they love. Over 60% of those with assets of $10 million or more state that caring for older family members is one of their top priorities. Over one-third feel greatly or moderately concerned by the quality of their parents’ estate planning, but only 43% of these individuals have held open discussions with them to clear up any misconceptions. As a result, each day that passes brings even more anxiety, with no clear solution in sight.

Those not yet caring for parents are worried about their children. About half of those surveyed who have children living at home feel that their children are spoiled; many worry that they will grow up feeling a sense of entitlement. Despite this fact, less than one-third have encouraged their children to earn their own money through after-school jobs, and almost 20% have done very little to teach their children about philanthropy, work, money, or the responsibilities that come with it.

How much is enough?

Everyone knows money doesn’t necessarily bring happiness, and those included in this survey are no exception. One-third of those surveyed admit that they are constantly worried about having enough money. Only 46% of those surveyed report that they have become happier as their wealth has increased, and almost one-third (29%) feel that money causes more problems than it solves.

Despite their wealth, most of those surveyed feel that they would need to double their assets to feel financially secure. Some 20% of those with assets of at least $1 million worry that they will not have enough money to support their current lifestyle when they retire. Those with $10 million in assets feel they would need just over $18 million on average to be secure, while those with $5 million would like to have at least $10 million. Those in the $500,000 to $1 million range would need an average of $2.4 million to feel secure.

Thinking about philanthropy

Over half of the wealthiest Americans feel that with their wealth comes a duty to engage in philanthropic activity. Yet many are baffled by the intricacies of charitable giving, making the charitable component of their estate planning a major cause of stress. Almost one-third of those with $10 million or more reported that choosing a charity was one of their top three major concerns.

How can gift planners help the wealthy accomplish their philanthropic goals? The first step is to realize that the wealthy are often as unprepared in their estate plans as the rest of Americans. A common misconception is that most of the wealthiest donors have cadres of advisors—attorneys, accountants, financial advisors, and others—who have already helped them establish wills and trusts to protect and manage assets and ultimately distribute their wealth to loved ones and charities. In other words, many think that their wealthier donors either have already included their charitable interests in their wills or have decided to distribute their wealth to noncharitable beneficiaries.

However, this latest survey reveals that more than one-third of the very wealthiest surveyed have no will, trust, or other estate plan in place. Gift planners must therefore continue to communicate the benefits of proper estate planning now—before it’s too late. For donors who express interest, it may be beneficial to set up personal visits to further discuss their philanthropic goals. Come to the table with several ideas of how the donor can leave a personal and lasting legacy to your organization. Try to learn enough in advance about the donor to know his or her special interests, personality, and family obligations to make your gift ideas especially appealing. (See page 4 for more on the importance of discovering those who already revealed their philanthropic intentions.)

The PNC survey also reveals that those wealthy individuals surveyed are feeling a number of pressures stemming from real or perceived obligations to family and society. The donor may see these interests as conflicting and may therefore have difficulty deciding which responsibility to fulfill first. A gift planner could take this opportunity to acknowledge these conflicting interests and help devise strategies that may help solve several problems at once. For instance, a donor who is concerned about the well-being of parents (37% of those surveyed) may be interested to learn that he or she can fund a gift annuity that will benefit a parent for the rest of his or her life while at the same time fulfilling a philanthropic goal.

Other donors who are concerned that their children may be growing up with an undue sense of entitlement may be interested in involving children in the philanthropic process, perhaps through helping distribute annual payments from a charitable lead trust that will eventually constitute all or a portion of their inheritance. Parents can allow their children some say in selecting the charities that interest them, deciding what if any restrictions to apply to the gift, and overseeing the giving process. In this way children can learn early on the responsibilities that come with privilege and the importance of sharing their wealth with those less fortunate.

Don’t ignore the rest

This survey should serve as a wake-up call: If many of the nation’s wealthiest are unprepared for the future, despite the urging of their advisors, chances are that those with less at stake are at least as unprepared. While it may be impractical to arrange for visits with everyone on your list, it can be a good idea to periodically remind all of your donors of the importance of proper estate planning. Consider “sweeping” your files with a mailing once or twice a year (see page 7 to learn about Sharpe’s new brochure, “Questions & Answers About Estate Planning”). A subtle reminder now could pay off handsomely in the long run.

The publisher of Give & Take is not engaged in rendering legal or tax advisory service. For advice and assistance in specific cases, the services of your own counsel should be obtained. Articles in Give & Take may generally be reprinted for distribution to board members and staff of nonprofit institutions and other non-donor groups. Proper credit must be given. Call for details.

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