Head of Defined Contribution and Wealth Advisor Services Matt Sommer helped conduct a study that explored whether individuals who have a strained relationship with their children are more likely to leave them out of a will or trust. Here, he discusses the findings of that study and the implications for financial professionals assisting clients with wealth transfer.

The transfer of wealth is a process that can be fraught with emotion. Not only does it force us to confront our own mortality, but it also involves difficult decisions that have the potential to spur conflict among those involved. This is especially true when children are the intended recipients – which is overwhelmingly the case for most people in the U.S.

There are two primary theories that attempt to explain why parents transfer wealth to their children. The altruism model suggests that parents use their wealth to compensate for their less fortunate children, while the exchange model speculates that parents transfer wealth to compensate for the social support their children provided to them during their lives. However, while prior research found that these models may help explain the intentions behind lifetime gifts, there has been limited data tying them to bequest motives.

The Love and Legacy Study

In an attempt to fill this gap and explore the topic from a different angle, I collaborated with a colleague from Kansas State University’s personal financial planning department, HanNa Lim, Ph.D., CFP®, to conduct a study examining the role of emotional closeness in bequest intentions (defined as including one’s child in a will). Specifically, our “Love and Legacy” study looked at affection – one of six constructs used in the Intergenerational Solidarity framework to explain the cohesion between parents and children – and posed the question, “What is the relationship between the affection displayed by children and their parents’ bequest intentions?”

Following is an overview of the demographics and key findings:

• Approximately 87% of respondents indicated an intention to make a bequest to their children, while 13% indicated no intention of making a bequest.
• In a sample of 1,534 adults ages 50 and older, a positive relationship was found between positive affection and bequest intentions.
• Surprisingly, no relationship was found between negative affection and bequest intentions.
• These results suggest that, in cases of a distant or strained relationship, parents are nonetheless reluctant to disinherit their children.

Implications for Financial Professionals

There are several important takeaways for financial professionals based on the study’s findings. First, approximately 54% of otherwise eligible respondents were eliminated from the analysis because they did not have a will or trust. While not directly related to the primary theme of the study, this result serves as an important reminder that financial professionals should proactively advise clients that dying without a will or trust means their estate may not be divided according to their wishes, and can also lead to delays, additional costs and a higher potential for legal disputes.

Delving deeper into the implications of the study’s main finding – that strained relationships do not necessarily lead parents to disinherit their children – financial service professionals should not assume that challenged parent-child relationships warrant the need for alternative beneficiaries. Instead, given the potential lack of strong emotional bonds with their children, financial professionals are encouraged to help clients consider other opportunities to maximize emotional well-being and overall life satisfaction. More specifically, they may help clients achieve feelings of accomplishment by encouraging them to pursue rewarding activities that provide a sense of control.

For those clients who have strong emotional bonds with their children, one thing financial professionals may need to address is what, if any, expectations are held by their clients’ children. While these conversations can be difficult, communication is critical because children’s expectations regarding bequests do not always match reality, and any misalignment between parent and child expectations can lead to hurt feelings and resentment.

For example, if parents and children both understand that the estate will comprise “anything left over,” little planning is necessary. On the other hand, if parent and child expectations are based on specific assets or amounts, additional steps may be necessary. Further, clients on a fixed income or those who are incurring out-of-pocket medical expenses might reconsider life insurance beneficiary designations to satisfy their bequest objectives. Financial professionals can help oversee retitling of property and ensure that trusts are properly funded.

A final area financial professionals may want to address is who will provide the social support that may be necessary throughout a client’s retirement. Research shows that most retirees age 85 and older will suffer from some type of health impairment that restricts their ability to live independently. These individuals often turn to family members to provide physical and emotional support. If a client’s children are unable or unlikely to provide assistance, financial professionals can help explore alternatives such as friends, relatives, or even community services.

Wealth Transfer as Part of a Comprehensive Financial Plan

Financial professionals who are committed to providing guidance on all areas of their clients’ financial lives – including bequest planning – have a duty to ensure their clients’ assets are properly secured for the future benefit of loved ones. This is particularly relevant today, as the impact of the COVID-19 pandemic and the potential for higher taxes has created a sense of urgency for clients to address estate planning.

Using the findings from our Love and Legacy study, it is my hope that financial professionals will be better equipped to understand their clients’ motivations and help construct a wealth transfer plan that reflects their goals, values and life’s purpose…..

¹ Almazora, L. 2018. “U.S. $68 Trillion Wealth Transfer Tsunami in the Next 25 Years, Says Cerulli.” Wealth Professional, November 26, 2018.