MatureMarket.com

July 30, 2005

 

Allianz Life Study Finds 'Legacy Gaps' in Inheritance Views

By K.S.

The communication struggles that baby boomers and those in their parents' generation thought they had overcome in the decades since the 1970s have resurfaced. This time the gap is around the transfer of 25 trillion U.S. dollars in wealth to be handed down by the elder generation to their heirs, 7.2 trillion dollars of which will go to the boomers*.

A new landmark survey found evidence of a huge generational gap on views of inheritance and legacy. The missing communications or the 'Legacy Gaps' between U.S. boomers (adults aged 40-59) and the elder generation (adults aged 65 and over) are among the key findings in The Allianz American Legacies Study, which reveals:

- Elders (22 percent) are seven times more likely than boomers (3 percent) to believe they owe their children an inheritance.

- The majority of the nation's baby boomers (68 percent) and those surveyed from their parents' generation (71 percent) say they feel highly confident discussing key elements of inheritance and legacy planning issues, yet only around one third (29 percent) of baby boomers and elders (31 percent) have actually done so with their own families.

- Non-financial leave-behinds - like ethics, morality, faith and religion - are 10 times more important to both boomers and elders with children than the financial aspects of a legacy transfer.

- Fulfilling last wishes and distributing personal possessions were five times more likely to be the greatest source of family conflict during a legacy transfer than the distribution of finances according to boomers whose parents are not alive.

- Top profile choice for the ideal legacy adviser is someone like Oprah Winfrey for boomers and Billy Graham for those in the elder generation. High net worth individuals, both boomers and elders, prefer Warren Buffet.

Legacy issues are both financial and emotional

"Many people wrongly assume the most important issue among families is money and wealth transfer - it's not," said Ken Dychtwald, president of market research consultants Age Wave. "This national survey found that for the overwhelming majority, legacy transfer has to do with deeper, more emotional issues. An inheritance focuses primarily on the money, but a true legacy also includes memories, lessons and values you teach to your children over a lifetime."

In order to understand the emotional and financial implications of this unprecedented transfer, Allianz commissioned the most comprehensive study on intergenerational wealth transfer ever. The Allianz American Legacies Study asked 2,627 people - boomers and elders - to identify how they define leaving a legacy and how families are communicating about these sensitive issues today.

"Many families are not getting to the heart of the real issues," said Mark Zesbaugh, CEO of Allianz Life. "If the conversation does not cover the four pillars people consider core to a true legacy - values and life lessons, instructions and wishes to be fulfilled, personal possessions of emotional value, and financial assets/real estate - the legacy conversation between the parent and the boomer child doesn't happen in a meaningful or effective way. This study is not only a call-to-action for American families to have important conversations about their family legacy today, but provides a helpful template for doing so."

Allianz Life engaged Age Wave to design The Allianz American Legacies Study. The survey was conducted by Harris Interactive. The study identified five key areas about what it means to both boomers and those in their parents' generation to leave a legacy:

Values, not valuables

The study found that both boomers and those in the elder generation were uncomfortable discussing the one-dimensional topic of leaving an "inheritance" but both enthusiastically embraced the idea of leaving a "legacy," because it captures all facets of an individual's life - including their family traditions and history, sharing stories, values and wishes.

- Passing along "values and life lessons" is overwhelmingly considered (by over 75 percent) the most important element of a legacy for both generations.

- Nearly 40 percent of the elder generation says it is very important to pass financial assets or real estate to their children, but only 10 percent of baby boomers feel the same.

Negotiating the Legacy Gap

The study found that although both boomers and those in their parents' generation say they are having in-depth conversations about legacy and inheritance, most of these conversations are not happening in a truly meaningful or productive way.

- Sixty-eight percent of boomers and 71 percent of those in their parents' generation say they have a high comfort level discussing legacy and inheritance, yet only 31 percent of elders and 29 percent of boomers have actually had a thorough discussion that includes all four pillars of legacy: values and life lessons, instructions and wishes to be fulfilled, personal possessions of emotional value, and financial assets or real estate. Are you the Alpha Child? An Alpha Child – defined in The Allianz American Legacies Study as "the child parents turn to first" – typically guides legacy planning. The profile of the Alpha Child is one who keeps the family connected and is a strong communicator.

- Two out of five elders with more than one child say they have an Alpha Child, however many boomers who have siblings don't know who the Alpha Child is – they over-estimate by a factor of four that they are the Alpha Child.

- Almost 50 percent of the boomers who are Alpha Children say it is their responsibility to initiate legacy discussions with their parents, and 77 percent say they are comfortable in discussing legacy.Performance-based inheritancesPerformance-based distribution gives more to the child that has cared for the parent and less to the children that were a source of stress and conflict. This distribution plan is particularly favored by individuals with a high net worth.

- Seventy-one percent of elders with a lower net worth felt that distribution should be equal; whereas, 54 percent of their higher net worth counterparts felt the same.

- Those in the elder generation are also twice as likely to view inheritance as a source of power. In fact, 34 percent of them feel making decisions about inheritance is an important source of power and control over their children.

The ideal legacy advisor: personal connection over performance

The top qualities both generations look for in a legacy adviser are honesty, trustworthiness, compassion, a good listener and a strong and clear communicator.

- The majority of those in the elder generation have made some plans for legacy transfer – only 11 percent have not – and 67 percent of them have sought professional assistance.

- When it comes to selecting a legacy adviser, the key requirements of honesty, explains things easily and good communication skills outrank helps to minimize taxes and works for a well-known company.

- Oprah Winfrey topped (19 percent) the boomers' list on who personifies the ideal legacy planner, Billy Graham was the elders' favorite (22 percent). High net worth individuals – both boomers (21 percent) and elders (31 percent) – chose Warren Buffet.Study methodologyHarris Interactive fielded a nationwide online and telephone survey for Allianz and Ken Dychtwald among 2,627 U.S. adults of whom 1,282 were age 40-59 (baby boomers) and 1,345 were age 65 and over (the elder generation).

The telephone survey was conducted between April 21 and May 2, 2005 among 2,004 U.S. adults, of whom 1,004 were baby boomers (age 40-59) and 1,000 were of the elder generation (age 65 and over). Figures for age by sex, education, race/ethnicity, household size, region, income, number of telephone lines and net worth were weighted where necessary to align them with their actual proportions in the population.

The online survey was conducted in the United States between April 22 and 27, 2005 among an over-sample of 278 baby boomers (age 40 to 59) and 345 elders (age 65 and over) who both have a net worth of over 250,000 dollars. Figures for age by sex, education, race/ethnicity, region, income and net worth were weighted where necessary to align them with their actual proportions in the population. Propensity score weighting was also used to adjust for respondents' propensity to be online.

Though the online sample was not a probability sample, Harris Interactive estimates with 95 percent certainty that the results for both the boomer (1,282) and elder (1,345) samples have a sampling error of plus or minus 3 percentage points. Sampling error for the following sub-sample results: elders who have children (1,247), elders who have more than one child (1,128), boomers who consider themselves to be the Alpha Child (498), boomers whose parents are alive and who have siblings (857), and boomers whose parents are not alive and who have siblings (315) is higher and varies.

On June 24 and 25, Harris Interactive conducted 200 additional telephone interviews with a random selection of the original 2,004 telephone respondents. This mini-survey was conducted to address the Four Pillars findings in more detail. 100 additional interviews were conducted with adults aged 40-59, an additional 100 additional interviews were conducted with adults aged 65 and older.

* By John J. Havens and Paul G. Schervish "Why the $41 Trillion Wealth Transfer Estimate Is Still Valid: A Review of Challenges and Questions," The Journal of Gift Planning, 7, No. 1, (January 2003).