As historical examples show, out-of-date wills, sloppy or non-existent estate planning and a failure by families to communicate can lead to expensive, even chaotic situations after a death. And these problems can be acute among HNW individuals.
The pandemic and the heightened risks of mortality have prompted US citizens to grapple with estate planning and wills, although data shows that much work remains to be done, even among high net worth individuals.
COVID-19 has upended business, entertainment, transport, political elections and sports. And the specter of death with/of the virus has to some degree broken the taboo that people in this modern age have about their eventual demise.
A recent study by Wells Fargo, involving data from Gallup, found that 45 per cent of 1,709 persons polled from November 9 to 15 said that they have neither a will nor an estate plan. About a third say they do have a written will (34 per cent), 4 per cent have written estate plans, and 17 per cent have both.
At Abbot Downing, the business part of Wells Fargo that serves ultra-HNW individuals, its staff know that even among this cohort of the population, people aren’t always on top of their estate planning game.
“A lot of times we think we address our estate planning and wealth transfer needs when we really haven’t done this in a formalized way. There is a need for education to know what formalized estate planning is,” Michael Liersch is head of Advice & Planning for Wells Fargo’s Wealth & Investment group, told this news service. (Abbot Downing is a part of that entity.)
A way to get clients to think about wills and estate planning is to frame questions about what their wealth and assets are for (supporting their lifestyles, families, legacy). “This naturally leads to conversations about the future,” Liersch said. Another important question is “Do you have enough to achieve these intentions?” Finally, an important question is who should be involved in such a conversation, he said.
High-profile cases underpin why getting estate plans and wills right can save millions of dollars. Such cases can date back decades. Abraham Lincoln died on April 15, 1865, after being shot, he did not have a will, and left an estate of $110,296 (several millions in today’s money); the artist, Picasso (died in 1973), left a large collection of artwork, homes, gold and bonds, but because he had no will, it took six years to settle his estate at a cost of $6 million. More recently, Prince, the US musician and entertainer, died without a will, leading to legal action. The actor Philip Seymour Hoffman, who died in 2014, hadn’t changed his will, which meant that his companion, from whom he had previously broken up, Mimi O’Donnell, inherited the entire estate. (Source: FPA GA Regional Symposium, 2017, “What Dead Celebrities Can Teach Us About Estate Planning.”)
There’s a natural reluctance to think about such matters, and this is regardless of wealth, Liersch said.
“Thinking about death is an unpleasant idea – that’s normal. We need to be empathetic – with ourselves and our families,” he said. Conversations with clients about death and planning for it can be “nerve-wracking.” Structuring conversations takes planning and insight, he continued.
One option that advisors should mention to clients is using a “Letter of Wishes,” Liersch said. This is a plain-language document that can help articulate the purpose and intentions for wealth. It often resonates with wealth holders, trustees, and family members, as a high-level, non-legally binding guide that can be easier to understand – especially at a high, philosophical level – than traditional legal documents, he said.
“It is great that people are saying they have not dealt with such matters – that means they are open to the idea that they should!” he added.
Among other findings from the Wells Fargo/Gallup report were that higher-income investors are no more prepared than investors as a whole, but the percentage with either a will, estate plans or both does increase with age. The percentage with no preparations declines from 70 per cent of investors under age 50 to 17 per cent of those aged 65 and older.
Nearly two-thirds (65 per cent) report that they have only spoken a little or not at all to family members about their will or estate plans, and 57 per cent said they need to do more when it comes to communicating these plans. Again, this changes with age, but even 45 per cent of retired investors say they need to do more.
Talking to family members about wills and estate plans is not something most investors enjoy. The slight majority (51 per cent) say they do it out of obligation, while most of the remaining respondents either avoid it (14 per cent), dread it (10 per cent) or don’t ever do it (14 per cent). Just more than one in 10 surveyed (11 per cent) say they enjoy it.
At the same time, the idea of including a “letter of wishes” in their will detailing matters from funeral arrangements to how they want heirs to use their money or other assets, appeals to 56 per cent of investors - possibly because it sidesteps direct conversations. Higher-income investors are not markedly different in most respects from all investors in their estate preparation or preferences. However, those high-income investors surveyed are much more likely to want to leave a letter of wishes (70 per cent vs. 56 per cent).