Wealthy worried kids will fritter away inheritance

Almost a quarter of wealthy individuals in the U.S. don't trust their children or stepchildren to protect the assets they plan on leaving the next generation.

About 23% of wealthy individuals in the United States don’t trust their children or stepchildren to protect the assets that they plan to leave to the next generation, according to a new survey of high-net-worth individuals.
That distrust is even higher on a global basis, with a third of the world’s wealthy people worried that the next generation won’t protect their inheritance, a Barclays Wealth survey of 2,000 high-net-worth individuals in 20 countries found.
About 36% of wealthy Americans reported that their financial blessings have caused conflict and disputes in their families, the survey showed.
“It seems that wealth has the ability to act as a double-edged sword,” said Chris Johnson, director of Barclays Wealth Americas, a division of U.K.-based Barclays Bank PLC.
Understanding different options and vehicles for transferring wealth to the next generation helps people feel more confident that their wealth will be wisely managed after they are gone, he said.
About 21% of the Americans surveyed said that they think wealth puts an unnecessary burden on the next generation. But despite those concerns, only about 3% of Americans said that they don’t plan to pass on their wealth to the next generation.
Nearly 70% of Americans said that they will require a “great deal” of professional advice in terms of estate planning, the survey found.
Individuals who are worried about how their children will manage an inheritance may choose to establish a trust that will manage distributions, while still leaving the assets to their kids, Mr. Johnson said.
They may even include an “incentive clause” within a trust structure to encourage children to be as productive as they would have been without being handed a large inheritance.
For example, Barclays Wealth recently set up an incentive clause within a trust for a client concerned that his son wouldn’t finish college and instead would play video games all day if he were to inherit the $40 million that his father had to pass down.
Under the terms of the trust, it will pay basic living expenses but beyond that will match only whatever the child earns in the real world, Mr. Johnson said.
In addition to passing down assets, wealthy individuals also seek to pass on their spirit of charitable giving.
“For wealthy parents, setting up a philanthropic vehicle is one method of passing down their value systems to their children,” Mr. Johnson said.
These commonly include private foundations and charitable remainder trusts.
There are always some clients who worry about how their heirs will spend what they worked hard to earn, said David Phillips, a financial adviser with Estate Planning Specialists LLC.
“But there are many ways to protect what they are handing down,” including revocable family dynasty trusts and irrevocable family fortress trusts, he said.