2013 U.S. TRUST INSIGHTS ON WEALTH AND WORTH

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1 2013 U.S. TRUST INSIGHTS ON WEALTH AND WORTH Key Findings FOR MEDIA INQUIRIES, CONTACT: Susan McCabe U.S. Trust Media Relations

2 Overview: 2013 Insights on Wealth and Worth U.S. Trust Insights on Wealth and Worth is one of the most in-depth studies of its kind to explore the attitudes, behavior, goals and needs of high net worth and ultra high net worth adults in the United States. U.S. Trust has been periodically surveying the perspective of wealthy individuals and families since In 2013, U.S. Trust commissioned an independent, nationwide survey of 711 high net worth and ultra high net worth adults across the country. The findings build on U.S. Trust Insights on Wealth and Worth studies conducted in 2011 and 2012, providing new insight on topics of emerging importance as well as revisiting previously explored themes. Profile of survey respondents 711 adults over the age of 18 Investable assets: $3M-$5M; $5-$10M; $10M+ Age of respondents: Average 53 years old Age 18-32: 15 percent (Gen Y or Millennials) Age 33-48: 23 percent (Gen X) Age 49-67: 47 percent (Baby Boomers) Age 68+: 15 percent 62 percent men 38 percent women Methodology The online survey was conducted by the independent research firm Phoenix Marketing International in February and March of Asset information was self-reported by the respondent. Verification for respondent qualification occurred at the panel company, using algorithms in place to ensure consistency of information provided, and was confirmed with questions from the survey itself. All data have been tested for statistical significance at the 95 percent confidence level. 2

3 Key findings Sources of wealth Investing attitudes and behavior Retirement expectations and planning Managing family wealth 3

4 Most of the wealthy created their wealth Three-quarters of respondents created the majority of their own wealth, through a combination of earned income from work, business ownership or investments. Only one-quarter inherited the majority of their wealth. Gen Y (age 18-32) are twice as likely as Gen X and Baby Boomers to have inherited a majority of wealth. Source of majority of wealth, all respondents Inherited, 25% Earned, 75% Source of earned assets: Income from work Financial investments Real estate Sale of business Source of majority of wealth, by age 44% 56% 19% 21% 28% 81% 79% 72% Inherited Earned Q1. How have you accumulated the majority of your financial assets? Age Age Age Age 68+ 4

5 Annual income split between investments and work Approximately one-half of annual household income comes from a combination of earned and investment income. Source of annual income, all respondents Women and those with the greatest net worth are the most likely to rely on earned income. Those over age 68 rely primarily on investment income. Investments, 48% Earned, 52% Source of annual income, by gender, age, asset level 45% 63% 67% 68% 50% 19% 51% 47% 71% Q82. Approximately what percent of your annual household income comes from each of the following sources (investments, earned income? Base: Source of income (excluding Don t knows. ) 81% 55% 50% 49% 53% 37% 33% 32% Male Female Age Age Age Age 68+ $3M-$5M $5M- $10M Investment Earned 29% $10M+ 5

6 Most of the wealthy grew up in middle class families Nearly two-thirds of all respondents, including 78 percent of Baby Boomers, came from middle class or lower families. Gen Y is the most likely to have grown up with wealth. Socio-economic status growing up 4% 6% 10% 15% 13% 22% 26% 24% 36% 40% 36% 0% 0% 5% 7% 16% 21% 42% 41% Wealthy Affluent Upper-Middle Class Middle Class Lower-Middle Class Poor 64% 23% 14% 18% 31% 24% 5% 6% 0% 4% 5% 7% Total Age Age Age Age 68+ Q8. Which of the following best describes the financial and socioeconomic status of your family as you were growing up? 6

7 Perceptions of wealth shaped by upbringing and source of wealth More than half (57%) do not think of themselves as wealthy now, despite their net worth. % who consider themselves wealthy Those who came from middle class or lower backgrounds and those who created the majority of their wealth are less likely to consider themselves wealthy now. No 57% Yes 43% 46% 61% 46% 64% 59% 51% 70% 54% 39% 54% 36% 41% 49% 30% Q3. Do you consider yourself wealthy? Q1. How have you accumulated the majority of your financial assets? Q8. Which of the following best describes the financial and socioeconomic status of your family as you were growing up? Inherited Created Source of majority of wealth Upper Middle-class Affluent/wealthy Upbringing Middle-class Lower middleclass/poor $3M-$5M $5M-$10M $10M+ Assets 7

8 Financial security to meet current and future needs 88 percent of the wealthy feel financially secure today, and 70 percent feel they will have the security to meet their future financial needs. Women and Gen X (age 33-48) are less likely to feel secure about meeting their current and future financial needs. % who feel financially secure to meet current / future needs All Age Age Age Age 68+ Women Men Current needs 54% Future needs 62% % who feel more/less financially secure compared to five years ago 70% 75% 72% 74% 76% 80% 84% 88% 87% 90% 93% 95% 48% 64% 43% 49% 33% 18% Q4. Do you feel financially secure, meaning you have the income and assets to comfortably meet your current financial needs and goals? Q6. Do you feel more/less financially secure today than five years ago? Q7. Do you feel financially secure when you think about the future, meaning you are likely to always have the financial means to comfortably meet your financial needs and goals? 24% 28% 17% 34% 23% 19% 23% 28% 49% All Age Age Age Age 68+ The same Less More 8

9 Top five reasons for lack of financial security Although the majority feel financially secure, there are subtle differences by age and gender. Among those who don t feel financially secure, the top five reasons cited for not feeling financially secure are concerns about: Retirement income Sense of fleeting financial success Job security Lifestyle expectations Investment performance I am worried I will not have enough income in retirement Felt most strongly by Gen X and women My financial situation could change tomorrow Felt most strongly by Gen X, Baby Boomers and those with $3M to $5 M I am uncertain about my job security and income potential Felt most strongly by Gen X I can t afford the lifestyle I want to live Felt most strongly by Gen Y Q5. Why don t you feel financially secure? Base: Those who do not feel financially secure now. I am worried about the performance of my investment portfolio Felt most strongly by those over age 68. 9

10 Investing attitudes and behavior 10

11 HNW investment priorities shift from preservation to growth Growing assets is a higher investment priority than protecting existing assets for six in 10 high net worth investors, a reversal of the focus of one year ago. In 2012, nearly six in 10 (58 percent) said asset protection was a higher priority Women and younger investors are slightly more likely to be focused on asset growth. Investment priority for managing wealth Preserve assets 40% Grow assets 60% Grow assets Preserve assets 41% 37% 23% 28% 47% 51% 59% 63% 77% 72% 53% 49% Q21. When it comes to managing your wealth and investment portfolio, which of the following is closest to your investment priority? Male Female Age Age Age Age

12 Lower risk still trumps higher returns Nearly two-thirds of HNW investors say that lowering risk, and achieving a lower potential return, is a higher priority than pursuing higher returns by taking on more risk. HNW households have become somewhat less risk-averse. In 2013, 37 percent said pursuing higher return with high risk is a priority, versus 30 percent in Investment priority for managing wealth Pursuing higher potential return with higher risk Lowering risk 37% while lowering potential returns 63% Younger investors (under age 49) are slightly less risk-averse than those age 49 or older. 61% 65% 48% 53% 70% 68% Q21. When it comes to managing your wealth and investment portfolio, which of the following is closest to your investment priority? 52% 39% 47% 35% 30% 32% Male Female Age Age Age Age

13 A substantial amount of cash is on the sidelines Despite investment growth goals, more than half (56 percent) of high net worth investors have a substantial amount of funds in cash positions. Women and Generations X and Y are more likely to have cash sitting on the sidelines. Women: 65% Men: 51% Gen X: 62% Gen Y: 69% Baby Boomers: 52% $$$ on the sidelines % of all respondents with substantial funds in cash No 44% Yes, Have a substantial amount of funds in cash 56% Q22a. Does your portfolio currently have a substantial amount of funds in a money market account, savings account or other type of cash accounts? 13

14 HNW investors not content letting cash sit idle Approximately one-half (49%) of HNW investors are not content leaving money in cash positions until the market stabilizes. Younger investors Gen X and Gen Y have a higher degree of comfort leaving cash on the sidelines than those over the age of 49. % not content leaving money in cash positions until the market stabilizes All Men Women 44% 49% 53% Age % Age % Age % Q22. Based on your experience, to what extent do you agree with each of the following statements about your investing behaviors and attitudes? Age % 14

15 Generational agreement on investing; generational gap on approach and comfort level HNW investors overwhelmingly agree (86%) that long-term buyand-hold investing is the best way to grow money over time. However, there are generational differences in perceptions about investing in the stock market. One-half (51%) of Gen Y feel that traditional investing in equities is over-rated and fear they will lose their money by putting it in the stock market. % who agree All Men Women Age % 23% 29% 21% 28% 24% 51% 51% 86% 86% 84% 81% Long-term buy and hold investing is the best way to grow money over time Investing in the stock market is over-rated I don't think I will ever be comfortable investing money in the stock market for fear of losing it Age % 33% 81% Age % 12% 88% Q22. Based on your experience, to what extent do you agree with each of the following statements about your investing behaviors and attitudes? Age 68+ 8% 21% 91% 15

16 HNW investors will invest cash over time, not immediately Two in five HNW investors plan to move large cash positions into investments gradually over the next two years, while another third have no plans to move the funds into other investments. Women and investors over age 68 are most likely to have no plans for investing cash. HNW plans for funds in cash accounts Move much of it into investments within the next few months, 16% Move much of it into investments gradually over the next 12 to 14 months, 44% Other, 5% No plans to move any of it into investments at this time, 35% 19% 11% 45% 42% 19% 18% 14% 13% 28% 43% 43% 57% Q22b. Which one of the following best describes your plans for the funds in your cash accounts? Base: Respondents who have large funds in cash accounts 54% 41% 31% 34% 36% 24% 5% 6% 0% 5% 7% 5% Male Female

17 Many of the wealthy don t feel well informed about the impact of tax law changes on investments, income Pursuing higher returns regardless of taxes is considered more important than letting taxes drive investment decision-making. Most (69%) HNW investors aren t changing investment strategy to seek tax-efficient investments or minimize taxes. Two-thirds (66%) do not feel wellinformed about the impact of tax law changes on investment returns. Investment priority for managing wealth Making investment decisions to minimize taxes 43% Pursuing higher returns regardless of tax implications 57% Plan to change investment strategy to minimize taxes No 69% Yes 31% More women (73%) than men (62%) do not feel well-informed about tax law changes. % not well-informed about tax law changes 73% 66% 70% 70% 74% 76% 70% 62% 63% 67% 67% 58% Q21. When it comes to managing your wealth and investment portfolio, which of the following is closest to your investment priority? Q44a. Do you plan to change your investment strategy or seek tax efficient investments to minimize taxes due to recent tax law change? Q44. To what extent do you feel you have an informed understanding about each of the following? Impact of tax changes on total investment return Impact of tax changes on income Impact of tax changes on estate Total Male Female Tax savings strategies available 17

18 Younger HNW investors showing interest in tangible assets Approximately two-thirds (65%) of all respondents own some type of tangible asset, ranging from art to infrastructure. Except for investments in residential real estate, investments in other tangible assets are more aspirational, with the strongest aspirations being among younger investors to invest in a wider range of investment properties. % who currently/likely to invest in tangible assets, by age Infrastructure Renewable energy Timber Oil, coal, gas properties 14% 13% 24% 36% 19% 14% 28% 36% 56% 32% 7% 9% 25% 36% 16% 31% 27% 38% 44% 33% Age 68+ Age Age Age All Residential real estate 39% 52% 56% 63% 75% Q23. Indicate if you own or have as an investment, and are likely to own/invest in each of the following within the next two years, or do not plan to own/invest in the next two years. Commercial real estate Farmland/Ranchland 4% 8% 15% 21% 21% 17% 28% 36% 45% 52% 18

19 HNW Millennials more comfortable with tangible assets than stocks Nearly two-thirds (64%) of Gen Y investors say they are more comfortable investing in a physical asset than in the stock market. Gen Y is almost twice as likely as other age groups to feel that investing in tangible assets has become a more important part of their overall wealth strategy. % who agree 73% 70% 62% All Age Age Age Age % 55% 55% 52% 36% 35% 23% 23% 18% 18% 15% 13% Investments in a tangible asset such as real estate, farmland and timber offer a stable income and hedge against inflation I am more comfortable owning a physical asset that has underlying value than traditional asset classes (such as stock) that are subject to market volatility Investing in tangible assets is a more important part of my overall wealth strategy given the current economic, political environment Q24. To what extent do you agree with each of the following statements. Q31. Thinking about the current tax, political and economic environment, would you say that your investment in each of the following is more or less important to your overall wealth management strategy? 19

20 Social impact of investment decisions is important The wealthy are conscious of the impact made by companies in which they invest, and 45 percent consider their investment decisions as a way to express their values. The younger the investor, the more likely to consider the impact of investment decisions, and the greater their willingness to accept higher risk or lower return on companies that have a positive impact. Regardless of the investment potential, nearly two-thirds (63%) of all respondents would not invest in companies that are harmful. % who agree Investment decisions are a way to express my social, political and environmental values I would be willing to accept a lower return from investments in companies that have a greater positive impact on society or the environment I would be willing to accept a higher risk on investments in companies that have a greater positive impact on society or the environment I would not invest in a company that has a negative impact on society or the environment, even if I thought I could make a lot of money 45% 69% 56% 36% 31% 46% 61% 58% 39% 37% 44% 72% 50% 35% 37% 63% 71% 64% 62% 55% All Age Age Age Age 68+ Q24. To what extent do you agree with each of the following statements? I would rather invest in companies that will have a positive social or environmental impact than boycott investments in companies that are harmful 71% 80% 72% 71% 66% 20

21 Despite importance, most investors haven t screened for impact About half (51%) of the wealthy believe it is at least somewhat important to consider the impact of investment decisions on society. Women and younger investors (Generations X and Y) are most likely to consider social impact important. Only about one-quarter of all respondents have screened their investment portfolio to evaluate its impact. Importance of social, political, environmental impact of investing Not important Somewhat unimportant Somewhat important Extremely important 10% 8% 6% 13% 18% 14% 7% 34% 34% 41% 35% 52% 51% 52% 34% 36% 31% 30% 23% 23% 22% 19% 24% 23% 26% 11% 8% 13% Total Male Female Age Age Age Age 68+ Q26. When evaluating investments, how important is positive or negative social, political or environmental impact of the investment in your decision on whether or not to invest? Q25. Have you ever reviewed your investment portfolio to evaluate the social, political or environmental impact of the companies in which you have investments? % who have reviewed investment portfolio for social, political, environmental impact 31% 24% 24% 24% 36% 17% 21% All Men Women Age Age Age Age

22 Men and women place different importance on impact investing Women generally have stronger feelings about the importance of investment for social and environmental impact. % agree, by gender Investment decisions are a way to express my social, political and environmental values 39% 53% More women than men would be willing to accept a higher risk or a lower return from companies that positively affect society. I would be willing to accept a lower return from investments in companies that have a greater positive impact on society or the environment I would be willing to accept a higher risk on investments in companies that have a greater positive impact on society or the environment 41% 39% 56% 53% I would not invest in a company that has a negative impact on society or the environment, even if I thought I could make a lot of money 58% 72% I would rather invest in companies that will have a positive social or environmental impact than boycott investments in companies that are harmful 67% 79% Women Men Q24. To what extent do you agree with each of the following statements? 22

23 Six in 10 HNW households have valuable collectibles as assets The wealthy are avid collectors, with nearly six in 10 (59%) owning some type of valuable collection related to a personal interest or passion. % who own/don t own valuable collections No, 41% Yes, 59% Types of valuable collections owned Fine watches or jewelry Fine art (paintings, photographs, sculptures) Antiques Rare coins or stamps 22% 20% 31% 35% Fine wine 13% Q27. Which of the following valuable assets do you own or collect? own/invest in the next two years. Classic, vintage or high-performance cars or motocycles Rare books or papers 7% 12% Something else 2% 23

24 Collectibles are assets of personal passion The primary reason for owning valuable collectibles is purely for personal enjoyment. Only about one-third collect because they see the collection as an investment. More men (40%) than women (19%) expect a return on their investment. Reasons given for owning collectibles I enjoy the intrinsic value of the items I consider the asset(s) a family heirloom for which I am the caretaker I expect an increase in value and return on the investment 32% 38% 79% I enjoy being part of a community of people who share a similar interest 26% It is a safe asset that will hold its value 19% It is part of a philanthropic commitment or strategy 6% It is a tax strategy 2% Q28. Which of the following are reasons you own/collect these assets? 24

25 Assets of passion not protected like financial assets About 45 percent of HNW households have collections valued at over $100, Nearly one in 10 own collections worth over $1 million. Actions taken to protect value of collectible assets Maintain formal documentation of authenticity and purchase/sale records 61% Six in 10 have formal documentation of authenticity and purchase/sale records, yet only about four in 10 (39%) have an up-to-date appraisal, which is crucial for valuation in estate settlement and has tax implications for future heirs. Purchased supplemental insurance coverage Have up-to-date appraisal of market value Clearly outlined wishes for disposition of the collection in an estate plan 20% 39% 52% Only one in five has outlined wishes for the collection in an estate plan or talked with future heirs about it. Discussed wishes for division of the assets with future heirs Sought professional tax, legal or financial advice 12% 19% 1 Data not charted. From Q30: What is the total monetary/market value of the collectibles you own? Retained a curator 7% Q29. Which of the following have you ever done to protect the value of your collections? 25

26 Retirement expectations and planning 26

27 The wealthy are confident in their retirement planning The wealthy are generally confident they will have the income they need in retirement. Among non-retirees, just over half (52%) are very confident they will reach retirement income goals. Non-retired women and Generations X and Y are less confident than non-retired men and Baby Boomers. Younger people want to retire before reaching age 65. Baby Boomers expect to keep working past age 65. Q71. How confident are you that you have calculated the income you will need in retirement and have a plan to attain your goals? Q69. At what age do you want to retire? * Data excludes respondents who indicated they never want to retire (1% Gen X, 3% Baby Boomer, 14% age 68+) Thus chart does not add up to 100. Confidence about reaching retirement income goals (nonretirees) 12% 13% 10% 14% 37% 28% 52% 59% 47% 41% 18% 40% 43% 45% 42% 6% 3% 31% 34% 63% 64% Total Male Female Very confident Somewhat confident Not confident Desired age to retire (% by age group)* < Age 64 Gen Y: 73% Gen X: 67% Baby Boomers: 38% Age 65+ Gen Y: 26% Gen X: 31% Baby Boomers: 59% 27

28 Retirement income planning is incomplete Large numbers of non-retirees have not adequately accounted for the impact of important factors on retirement income, including taxes, inflation, healthcare and long-term care costs and financial support needed by family members. Three-quarters of non-retirees have not accounted for changes in real estate values, yet more than half say their primary real estate is important for funding retirement. Factors not accounted for in calculating retirement income (among non-retirees) Distributions from retirement savings accounts Lifestyle expectations/spending level Cost of living increases/inflation Cost of out-of-pocket healthcare Impact of taxes on investment gains Likely amount of Social Security benefits Life expectancy Likely amount of Medicare benefits you will receive Cost of long-term care, if needed Loss/gain in the value of real estate Financial support needed by your children/heirs Financial support needed by your parents/in-laws 40% 44% 47% 51% 52% 53% 56% 62% 62% 75% 80% 82% Q72. Which of the following favors have you adequately accounted for in calculating your income in retirement? (Base: Non-retirees) Q73. How important is the value of your primary residential real estate to being able to fund your retirement? % who say value of primary residence is important to funding retirement Non-retirees 52% Retirees 23% 28

29 Serious retirement planning delayed until later in life Calculations for retirement income become more comprehensive with age. Financial support for parents/children and loss/gain in real estate value top list of factors not being considered by all ages. Q72. Which of the following favors have you adequately accounted for in calculating your income in retirement? (Base: Non-retirees) Factors not accounted for in calculating retirement income (among non-retirees, by age) Financial support needed by parents/in-laws Financial support needed by children/heirs Loss/gain in the value of real estate Cost of long-term care, if needed Impact of taxes on investment gains Life expectancy Likely amount of Medicare benefits to receive Cost of out-of-pocket healthcare Cost of living increases/inflation Lifestyle expectations/spending level Likely amount of Social Security benefits to receive Distributions from retirement savings accounts 0% 21% 21% 23% 21% 28% 21% 18% 15% 36% 36% 24% 34% 46% 61% 52% 52% 49% 65% 60% 66% 82% 81% 83% 83% 78% 79% 88% 76% 82% 70% 68% 79% 67% 48% 39% 64% 57% 40% 44% 66% 68% 41% 63% 62% 79% 72% 77% Age Age Age Age

30 Managing family wealth 30

31 Better off financially than parents, siblings and children Baby Boomers and those who came from middle class backgrounds are somewhat of a phenomenon in their own families, generally better off than all other adult family members parents, siblings and adult children. In many cases, they are not only the first generation in their family to become wealthy, they may be the only member of the immediate family to achieve such financial success. It can be a blessing and a burden when it comes to taking on financial responsibility for extended family. % who are financially better off than adult family members 78% 82% 61% 59% Middle class or lower upbringing 48% 69% Upper-middle class/wealthy upbringing Better off than 51% 45% 41% 42% 83% 85% 83% 72% 56% 72% Age 18-32* Age 33-48* Age Age 68+ Parents Siblings Adult children Q9. Would you say your current financial and socioeconomic status is better, worse, or about the same as each of the following family members? * Does not include comparison with adult children given age of children. 31

32 Financial responsibility is felt for extended family Whereas few people over age 33 ever expect their parents to become financially reliant on them, nearly half (46%) of Gen Y expects their parents to rely on them for financial support at some point in their lives. % who ever expected parents / in-laws to become financially reliant All Age % 46% Approximately one-half of respondents feel responsible for providing financial support to parents and adults siblings, if it were needed. Age Age Age % 27% 34% Q35. At any point in your lifetime, do you expect your parents or in-laws to rely on you for financial support or assistance to help meet their expense and income needs? Base: Those who have parents/in-laws still living. Q38. To what extent do you agree or disagree with the following statements about the use of your wealth for extended family members? * Base: Those who are better off financially than their parents/siblings and have parents/in-laws still living. % who feel responsibility to provide financial support to parents / siblings Financial support for less-financially fortunate siblings, if they needed it. Financial support for parents / in-laws even if it jeopardized personal financial security* 55% 63% 32

33 Expectations of support for parents assumed by financially well-off and younger generations Many of those who are financially better off than other adult family members expect to shoulder a greater share of the costs to care for aging, infirm parents. The youngest generation is most likely to feel greater financial responsibility for parents. % who feel that because of their financial success, they are expected to provide a disproportionate share of cost to care for aging or infirm parents * 48% 69% 46% 40% 20% One-half expect siblings to share equitably the total time and resources devoted to care for aging parents. Q38. To what extent do you agree or disagree with the following statements about the use of your wealth for extended family members? *Base: Among respondents whose parents /siblings are still living and who are better off financially than other adult family members. All Age Age Age Age 68+ % who expect siblings to equitably share responsibilities for the physical, financial and emotional support needed by aging or infirm parents * 54% 82% 63% 50% 25% All Age Age Age Age

34 Extended family financial support is a reality not planned for Nearly half (46%) of all respondents say they provide substantial financial support for adult members of their family. Yet more than two-thirds (69%) do not have a financial plan that factors in the needs of any adult family member, other than their spouse or partner. Men are nearly twice as likely as women to say they provide financial support for parents / in-laws. % who have provided, or are providing, substantial financial support for the following adult family members: Adult children Parents In-laws Adult siblings Adult nieces/nephews 8% 10% 19% 18% % who have a financial plan for adult family members other than spouse/partner 56% Q34. Do you, or have you ever, provided substantial financial support (not a loan) to any of the following? Q36. Do you have a financial plan that accounts for substantial financial support/assistance needed by adult family members, other than your spouse? No, 69% Yes, 31% 34

35 Family health is new threat to family wealth Nearly half (47%) have a financial plan to cover long-term care costs for themselves and a spouse or partner, but only 18% have a plan to cover long-term care costs for their parents. Younger respondents (Gen Y) are more likely than Baby Boomers to have personally paid for parents healthcare and long-term care costs. Younger respondents are far more likely than Baby Boomers to have a financial plan or purchased longterm care insurance for parents. Q37. Please indicate which of the following you have ever done. * Base: Respondents whose parents are still living Actions taken to plan for healthcare and long-term care costs Established a financial plan to cover longterm care costs for self and spouse/partner Established a financial plan to cover longterm care costs for parents / in-laws or other aging relatives* Personally financed the cost of long-term care for parents* Personally paid out-of-pocket medical expenses for parents and other aging relatives* Calculated cost of assisted, living nursing or private care and how it will affect parents' assets/financial plan* Purchased long-term care insurance for self and spouse/partner Purchased long-term care insurance for parent or other relative* 2% 0% 9% 10% 18% 13% 19% 16% 8% 6% 11% 13% 17% 24% 25% 27% 20% 23% 27% 34% 36% 35% 41% 32% 31% 31% 32% 34% All Age Age Age Age % 47% 46% 43% 48% 52% 50% 35

36 Care giving is a family resource not planned or accounted for Eight in 10 families don t have a family plan to support the needs of aging parents and relatives. % who have established a family plan to support needs (physical, emotional, financial) of aging or infirm parents and relatives Married women are more likely than married men to say they devote more time as a family caregiver and to have done so at the expense of their income and career. No 84% Yes 16% Few families (19% overall) have calculated the monetary value of time spent care giving. % who agree / have done the following I devote more time than my spouse / partner as a caregiver to aging parents and relatives 21% 37% Q37. Please indicate which of the following you have ever done. Q38. To what extent do you agree or disagree with the following statements about the use of your wealth for extended family members? I have forfeited income or advancment of my career to care for the special needs of children / or parents Have calculated the monetary value of time spent by a family caregiver to support the needs of parents or other family members 21% 26% 17% 23% Men Women 36

37 Long-term care wishes discussed primarily with spouse Three-quarters (78 percent) of people have discussed long-term care plans and wishes with their spouse or partner. Only about one-third (35 percent) have shared any long-term care plans or wishes with adult children. Women are somewhat more likely than men to discuss long-term care plans with their children. Approximately one-quarter have never discussed their long-term care wishes with anyone. % who have discussed long-term care plans With a spouse or partner* 35% With children** 31% 44% 27% With a financial advisor 28% 25% 23% Have not discussed with anyone 22% 24% 78% 80% 74% Total Male Female Q39. With whom have you discussed your plan for long-term care decisions? * Base: Married respondents ** Base: Parents with children 37

38 Estate planning goals and actions not aligned The top three cited goals of estate planning are meeting the needs of a spouse / partner, minimizing taxes and minimizing the burden of estate settlement. Though three-quarters (74%) of the wealthy have a will, 72 percent do not have a comprehensive estate plan. Both revocable and irrevocable trusts are being underutilized. At least two-thirds of respondents have never established a trust. % who identify the following as the most important goals of estate planning To ensure financial needs of spouse or partner are met To minimize estate taxes To minimize the burden of estate settlement To treat all heirs relatively equal To protect assets from falling into the wrong hands To preserve family wealth for future generations To ensure financial needs of children are met 21% 20% 20% 30% 29% % who do not have the financial documents listed below 49% 56% Comprehensive Estate Plan 72% Healthcare Proxy/Living Will 47% Durable Financial Power of Attorney 58% Q40. Which of the following documents/vehicles do/don t you currently have in place? Q43. Which of the following do you consider to be an important goal of your estate plan. Revocable Trust Irrevocable Trust Life Insurance Trust 66% 80% 81% 38

39 Underutilization of trusts The top reasons cited for not using trusts are simple procrastination and belief that a will precludes the need for a trust. Other reasons suggest a general lack of awareness and misunderstanding about trusts. Only about one-quarter of respondents, men and women alike, feel very well-informed about how various trusts can be used to protect assets and minimize taxes. Top three reasons given for not establishing trusts My wishes are spelled out in my will, so I don t need a trust. I haven t gotten around to it. I don t know what the benefits are of having a trust. % who feel very informed 27% 25% 26% 27% 22% 24% All Q41. Which of the following describes why you have not included a trust as part of your estate plan? Base: those who have not established a trust. Q44. To what extent do you feel you have an informed understanding of the following? Pros and cons of various trusts for minimizing estate taxes Trust provisions that will protect estate assets for future heirs or beneficiaries Men Women 39

40 Spouse is most often chosen as executor of estate Six in 10 people say they have named or plan to name their spouse or partner as executor of their will/estate, primarily because of their level of trust in the person. Four in 10 will name at least one child as executor. Only 32 percent of people choose an executor based on the person s financial knowledge and skills. % who have named spouse or children as an executor 60% 34% 11% Spouse or partner One child More than one child Reason executor was chosen I trust this person most 78% This person understands my wishes better than anyone else 52% This person has financial knowledge and skills 32% Q45. Who have you/will you name as the executor of your estate? Q46. Why have you named this person? To honor this person I don't trust anyone else 8% 13% 40

41 Financial skills, time are biggest challenges for executors Those who have already served as an executor of an estate identified the most difficult part of fulfilling the responsibilities as having sufficient legal or financial knowledge. More women (44%) than men (26%) cited knowledge/skills as a difficulty. Most difficult part of being an executor* Having sufficient legal/financial knowledge Having access to records and information Commitment of time required Managing disagreement among heirs 20% 32% 26% 30% 32% 25% 30% 30% 30% 28% 32% 44% More men (32%) than women (25%) cited difficulty accessing or knowing the whereabouts of records and information. Filing tax returns Paying bills or debts owed 18% 25% 26% 22% 22% 23% Determining value of assets 9% 14% 16% Q49. Which of the following was the most difficult part of serving as an executor or trustee of an estate? * Base: Those who have previously ever served as an executor. Sharing decision-making with co-executor 9% 12% 3% All Men Women 41

42 Executors, heirs need better access to important documents The vast majority (87%) of married respondents know the whereabouts of important records, and most have updated and organized their important information. % who have taken steps to organize personal financial information Outlined wishes for authorized access to digital passwords or online assets 37% Only about half (54%) have informed the person named as executor of their estate how to access records/information. Organized all passwords for access to digital assets or accounts in one place Informed executor about how to access all important medical, financial and legal records 55% 54% 45 percent say they have not organized passwords for accessing digital accounts and assets, and 63 percent have not outlined their wishes for their digital assets, such as social media sites, and music and media downloads. Organized all personal, financial, medical and legal records in one place Updated financial, medical and legal records and information,if changed Informed spouse / partner where important medical, financial and legal records are kept 67% 72% 87% Q42. Which of the following have you done? 42

43 Importance of leaving an inheritance varies by generation and family values/tradition of passing on wealth Two-thirds of respondents overall think it is important to leave a financial inheritance to the next generation. The youngest and oldest age groups (Generation Y and those over age 68) place greater importance on leaving an inheritance than those in the middle age groups (Baby Boomers and Gen X). % who consider it important to leave a financial inheritance All Age Age % 63% 78% 33% 22% 37% Yes No Those who already have received, or expect to receive, an inheritance place greater importance on leaving an inheritance. Age Age % 72% 36% 28% % who consider it important to leave a financial inheritance, sorted by those who have/have not received an inheritance themselves* Q15. Do you consider it important to leave a financial inheritance to your children/heirs? *Base: Among parents who have ever received a financial inheritance (from Q10) and those who do not/do not expect to ever receive a financial inheritance ( Q13). Have or expect to receive an inheritance Have not/don't expect to receive an inheritance 57% 72% 43% 28% Yes No 43

44 Parents not fully confident their children can handle inheritance More than half (58%) of wealthy parents are not fully confident their children will be well-prepared to handle a financial inheritance. Percent of parents who are not fully confident their children will be well-prepared to handle a financial inheritance Younger parents are more confident than older parents in the next generation s ability to handle an inheritance. All Age % 58% Age % Age % Age % Q51. Please indicate the extent to which you agree or disagree with the statement: My children will be well-prepared to handle the inheritance I plan to leave them. 44

45 Parents think children can t handle wealth until age 25 Part of the reason many parents lack confidence in their children s ability to handle wealth may be that they don t think children will be mature enough until well into adulthood. Most don t think their children will be mature enough to handle wealth until they are at least age 25. Approximately one-half (57%) believe their children will be mature enough between ages Nearly half (49%) of those age 68 or more believe the next generation isn t mature enough until they are older than 40. Age at which parents think children can handle their wealth 5% 27% 30% 16% 22% 15% 42% 33% 2% 8% 7% 4% 2% 43% 24% 11% 23% 37% 19% 15% 17% 14% 13% 22% 49% All Age Age Age Age Q50. At what age do you think your (child/children) will have achieved the maturity necessary to handle the money they will receive? 45

46 Wealthy parents haven t fully disclosed wealth to adult children About four in 10 (39%) wealthy parents have fully disclosed their wealth to children over the age of 25, while just about half (53%) have disclosed only a little. The older generation is less likely to have fully disclosed family wealth to the next generation. Extent of Disclosure of Level of Wealth to Children Over 25 Years Old 39% 42% 34% full little 53% 49% 61% no 8% 9% 5% All respondents Age Age 68+ Q52. To what extent have you disclosed the level of your wealth to your child/children? Base: Parent with children over age

47 Top three reasons for not fully disclosing wealth to children The most common reason for not discussing wealth with children is overall resistance toward discussing wealth. Baby Boomers and those over age 68 are somewhat more likely to say this than Gen X and Gen Y, who appear to be more willing to discuss wealth with children at an earlier age. I was taught never to discuss wealth. I am concerned it will negatively affect child/children s work ethic. I never thought about it. Q53. Which of the following best describes why you haven t fully disclosed your level of wealth with your child/children? Base: Those who have not fully disclosed wealth to their children. 47

48 Wealthy parents want to instill strong values about money Almost all wealthy parents consider themselves to be positive role models in managing money, and most believe their parents were role models for them. While nine in 10 wealthy parents believe their children appreciate the privileges of family wealthy, nearly half are concerned that they feel entitled to it, and that this will hold them back from achieving their own success. % of wealthy parents who agree I am a positive role model to my children in the way I manage money My parents were a positive role model in how to manage money My children appreciate the value of a dollar and the privileges of growing up in a family with good fortune I would rather my children grow up to be charitable than wealthy 65% 86% 89% 97% My children feel entitled to the lifestyle I worked hard for 51% My children are not likely to achieve the financial success I have because thgey've never known what it's like to go without 47% Q51. To what extent do you agree/disagree with the following statements: 48

49 Younger generation inheriting greater wealth One in five wealthy households has received an inheritance of at least $1 million. Nearly two-thirds (63%) have received $500K or less. Adults younger than 49 are most likely to have received $1 million+. The average size of inheritances already received is $526,263. Amount of inheritance received (by those who have received any inheritance, regardless of if it was a major source of wealth) 8% 21% 9% 31% 32% 14% 13% 26% 6% 31% 41% 12% 15% 23% 20% 5% 16% 8% 39% 23% 33% 10% 14% 11% 42% Don't know $1 million or more $500,000 to less than $1 million $100,000 to less than $500,000 Less than $100,000 All Age Age Age Age 68+ Q14. What is the approximately value of the financial inheritance you or your spouse received? *Base: Among those who have received an inheritance. Excludes Don t knows Some data do not add to 100 due to rounding. 49

50 Future inheritances to be larger than those already received The average size of future expected inheritances is more than $700,000, 34 percent larger than the average inheritance already received. Those who inherited a majority of their wealth have/expect to receive an inheritance nearly twice that of those who created most of their own wealth. Average actual and future expected inheritance $708,115 $526,263 $582,464 $337,644 $818,125 $938,480 All Created majority of wealth Inherited majority of wealth Avg. actual received Average expected Q14. What is the approximately value of the financial inheritance you or your spouse received? *Base: Among those who have received an inheritance. Excludes Don t knows Some data do not add to 100 due to rounding. 50

51 Majority of inheritance money received as cash Among those who have received an inheritance, two-thirds received a lump sum payout of cash, which, unlike funds in a trust or investment portfolio, needs to be acted on. Type of inheritance received Lump sum of cash Investments such as stocks and bonds 45% 67% The receipt of cash, particularly at an early age, reinforces the importance of financial education for the next generation. Property, such as a house or land Distribution of assets in a trust 24% 37% Payout from insurance policies 23% Pensions or other qualified retirement savings 6% Business or business assets 4% Q11. Which of the following describes the financial inheritance you received? 51

52 Benefits of professional financial education Four in 10 wealthy parents believe their children would benefit from discussions with a financial professional. More than three-quarters of parents have a professional advisor who has not formed a relationship with their children. % of parents who strongly agree their children would benefit from discussions with a financial professional* 39% 38% 32% 43% 36% All Age Age Age Age 68+ % of those whose primary financial advisor has a relationship with their children/heirs** Yes, 31% Q51. Please indicate the extent to which you agree that your children would benefit from discussions with a financial professional. *Base: Parents with children of any age. Q78. Please indicate if each of the following regarding your financial advisor applies to you or not ( Has a relationship with your children/heirs.) **Base: Respondents who have a primary financial advisor. No., 69% 52

53 Financial skills and knowledge were primarily self-taught The vast majority of wealthy adults are confident in their financial skills and knowledge. The majority say they taught themselves the financial skills and knowledge they have, with about half saying it was through trial and error. % who are confident in the financial skills/knowledge they have 95% All 96% Men 92% Women 96% 97% 85% Age Age Age % Age 68+ Men are more likely to say they learned on their own whereas more women say they were taught by their parents. Source of financial skills/knowledge Self-taught 52% 65% 73% Only about one in three received financial training from a professional. Q55. How did you gain the financial skills/knowledge you have? Trial and error Taught by parents or other family Formal training/advice from a professional advisor Learned from mistakes of others 46% 47% 44% 46% 40% 55% 31% 34% 27% 30% 30% 30% All Men Women 53

54 Men feel better prepared with financial skills than women While many of the wealthy feel they were well-prepared in life with technical financial skills and protecting privacy, fewer than onequarter feel well-prepared for the responsibilities and personal implications of having wealth. More men than women feel they were well-prepared with financial skills in every area, with the greatest gender gaps in saving for retirement, investment decisionmaking and the strategic use of debt. Q54. Which of the following financial skills/knowledge do you feel you were wellprepared for in your own life? % who feel they were well-prepared in life with financial skills Managing credit card use Saving for retirement Establishing and adhering to a budget Making investment decisions Protecting privacy about personal/family wealth Strategically using debt Receiving an inheritance Being a steward of family wealth Using wealth for social good Handling implications of wealth on personal relationships 25% 24% 25% 23% 22% 25% 18% 20% 21% 19% 24% 28% 18% 53% 55% 49% 52% 59% 41% 42% 45% 36% 39% 48% 76% 77% 74% 73% 80% 62% All Men Women 54

55 Greatest influence on personal success of next generation is tied more to values than to money Eight in 10 wealthy people say they inherited a strong work ethic from their parents, and that it played a very important role in their own personal success. Work ethic, financial discipline and harmony in the home all played an important role in achieving personal success, far more than money or connections. While fewer than half say their families paid for/provided access to the best education, those who did receive this say it was very important to their success. Q19 Which of the following was provided for or passed to you by parents, grandparents or other relatives? Q19a. How important a role did this have in your own success? Family influence passed down and importance to financial success Work ethic Financial skills/discipline Emotional stability /harmony at home Exposure to education, cultural or intelletual enrichment Freedom to pursue personal passions or skills Lessons learned/mistakes not to repeat Access/payment to the best education Charitable traditions and values Financial gifts Payment or loan for housing/mortgage Introductions to influential people 13% 20% Provided for or passed along by family 36% 30% 38% 37% 38% 47% 45% Played a very important role in personal success 58% 57% 55% 53% 50% 61% 71% 71% 80% 80% 78% 87% 92% 55

56 Important Disclosures Methodology The U.S. Trust 2013 Insights on Wealth and Worth survey is based on a nationwide survey of 711 high net worth and ultra high net worth adults with at least $3 million in investable assets, not including the value of their primary residence. Among respondents, 33% have between $3 million and $5 million in investable assets, 33% have between $5 million and $10 million and 34% have $10 million or more. The survey was conducted online by the independent research firm Phoenix Marketing International in March of Asset information was self-reported by the respondent. Verification for respondent qualification occurred at the panel company, using algorithms in place to ensure consistency of information provided, and was confirmed with questions from the survey itself. All data have been tested for statistical significance at the 95% confidence level. U.S. Trust operates through Bank of America, N.A., and other subsidiaries of Bank of America Corporation. Bank of America, N.A., Member FDIC Bank of America Corporation. All rights reserved. ARE /