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Advanced HNW Planning Benefits "Negated" By Outdated Estate Plans - New Study

Eliane Chavagnon

26 September 2012

Although three-quarters of estate plans relating to high net worth clients are at least three years old, an overwhelming 95 per cent of these clients have experienced “significant changes” since the plans were drawn up, according to a new study by US professional services firm Rothstein Kass.

In terms of the primary reasons why wealthy families do not have up-to-date estate plans, 42.9 per cent of 56 single-family offices said they “do not see the need,” while 26.8 per cent cited “lack of time” and 21.4 per cent said the topic was “too difficult to address at this time.” Under 10 per cent (8.9) cited “other”.

“Although many HNW families let plans become outdated due to time constraints or not seeing the need to update them, it is critical to do so, otherwise the benefits of advanced planning will be negated,” said Rick Flynn, a principal and head of the family office group at Rothstein Kass.

The study, Missing the Mark, surveyed 74 single-family office executive directors and also revealed that nearly 53 per cent of wealthy families do not have formal asset protection plans in place. In this respect, 41.1 per cent of 39 single-family offices “do not see the need,” while 35.9 per cent cited “lack of time,” 17.9 per cent claimed it is “too complicated” and 5.1 per cent said it was illegal. 

The study may fuel debate on how effective wealth advisors are in ensuring their clients keep their estate plans up to date, particularly at a time when tax and regulatory changes are happening with increasing frequency.

No legitimate excuse

“The truth is, in this day and age, there is absolutely no legitimate excuse for not having an asset protection plan in place,” Flynn said in the report. “History has shown that personal liability policies are sometimes insufficient, and that in legal disputes, the righteous do not always prevail.”

The single-family office model is designed to find and fill cracks in the family’s defences, Flynn added. “Following through with other advanced planning functions while ignoring this critical component is equivalent to leaving one side off of a shark cage,” he said. “In general, single-family office executives need to do a better job of educating their clients regarding the benefits of asset protection planning.”

The survey also highlighted eight “core elements” of advanced planning. They are: flexibility, transparency, risk sensitivity, cost-effectiveness, discretion, cohesiveness, explicitness and legitimacy.

Additional findings include:

  • Nearly 84 per cent of life insurance policies have not been reviewed for at least three years
  • Over half of wealthy family members have been involved in unjust lawsuits or divorce proceedings
  • Over 90 per cent of wealthy families are concerned that family members will be involved in unjust lawsuits or divorce proceedings.

    “Regardless of wealth, accidents happen, businesses sink, and marriages fail,” Flynn warned. Single-family office clients also understand that some will be emboldened to target them for their wealth alone. This knowledge has driven soaring interest in family security services among the ultra-wealthy, while also offering a powerful case for thorough and regular review of the family’s overall asset protection strategy,” he said.