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May 28, 2007 8:40 pm

Wealthy Americans do not attach strings for heirs

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The majority of wealthy Americans who have wills in place have not attached strings for their heirs, according to the results of a survey.

The survey, which was conducted by PNC Wealth Management, a member of The PNC Financial Services Group, found that only 30 per cent of high net worth individuals with estate planning documents include stipulations that heirs meet specific requirements in order to receive their inheritances. At the same time, 62 per cent believe it is “important that each generation take responsibility for creating its own wealth”, the survey said.

Martyn Babitz, senior vice-president at PNC and a senior trust advisor for Hawthorn, which serves ultra-high net worth families, said that this sentiment appears to be at odds with not putting conditions into a will or trust.

He said that incentives should be considered as a motivator for the beneficiaries to follow the giver’s wishes, “as opposed to treating family assets as an entitlement”.

Most often, trusts require recipients to reach a certain age or successfully complete a college education, Mr Babitz said. But some individuals choose to include more subjective strings, such as requiring an individual to hold a productive job, start a business or do certain work that is beneficial to society such as teaching or social work.

In addition, he said, “disincentives” are sometimes used to motivate recipients to avoid personally destructive behaviours, such as drug or alcohol use or even requiring marriage within a faith, the latter a more controversial approach.

“Often, the grantor of the trust is trying to prevent a beneficiary from dropping out of society altogether or to motivate him or her to work rather than live solely off of their inheritance,” Mr Babitz said.

Of those who have attached conditions to their will or trust, 77 per cent have earmarked funds to be put towards the beneficiary’s education, while 46 per cent have identified funds to be used for basic needs, such as housing.

Nearly 30 per cent have set aside funds for the next generation, while 28 per cent have identified funds for business or career-related expenses, and 16 per cent have identified funds to be used for specific charitable donations.

The higher the asset level, the more likely it is that incentives will be applied, the survey found. A little more than half – 57 per cent – of those with $10m in assets and 42 per cent of those with between $5m and $10m in assets require heirs to satisfy certain terms such as age, education or maintaining a satisfactory job before they are allowed to have access to their inheritance.

The survey – which involved more than 1,000 US adults with at least $500,000 investable assets if employed, or at least $1m of investable assets if retired – also found that younger people are more likely to have incentives attached to their estates. Fifty-six per cent of those in the 18-44 age range say they have attached stipulations to their estates while only 27 per cent of those aged 45 to 64 and 19 per cent of those over 65 have done so.

Nearly three-quarters of respondents say they plan to leave money to their children, with 61 per cent planning to leave it to a spouse, a third to grandchildren, and 30 per cent intending to leave assets to charity.

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