how much should i give to my family? on the risks and ... · giving is an evolving process, not a...

H O W M U C H S H O U L D I G I V E TO M Y FA M I LY ? O N T H E R I S K S A N D R E WA R D S O F G I V I N GWhen giving, you want to make the most of your wealth. Understanding how to empower those who receive your gifts is just as important as clarifying your own goals and intentions.

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Unsurprisingly, the average person tends toward constructing a narrative about wealth and giving based on the most prevalent images in our culture—even if those images are distorted. It’s natural that we tend to form biases by clinging to information that’s readily available,1 and that’s why negative perceptions about giving can also taint views of philanthropy. Consider The Giving Pledge, which encourages the world’s richest people to donate a majority of their wealth to charity while they’re still alive. Critics have deemed the pledge self-congratulatory,2 and/or a glorified tax break.3 But the reality is that most who commit to the pledge are truly passionate about the cause or causes they intend to give to.4

None of these stereotypes about giving tell us much about investors’ true intentions and goals for giving. In fact, they may cause families to shy away from broaching the topic at all. Unfortunately, avoidance can impede the very real process of defining giving priorities. But it doesn’t have to.

Our research on giving and sustaining wealth is aimed at moving beyond superficial assumptions, and helping to empower families to

I: Why We Give: Perceptions Vs. Reality

WHEN IT COMES TO GIVING to the rising generation, wealthy families

may be painted in broad strokes, and not always in a positive light. The

media tend to take absurd headlines such as “Heiress Leaves Millions to

Poodle” and portray these attention-grabbing outliers as the norm. Those on

the receiving end of inheritance get their own spin; one blog that compiles

photos of children of the wealthy from social media gives the impression

that the next generation in wealthy families spend all their time drinking

champagne on yachts, flying private jets to St. Tropez, or deciding whether

to take the Bentley or the Ferrari for a spin.

1 Foundational research by Nobel Laureate Daniel Kahneman (and his colleague Amos Tversky) has shown that the availability of information can influence people’s perception. For example, when information is available — or more easily recalled — people tend to weight it more in the inferences they make. Source: Amos Tversky and Daniel Kahneman, Availability: A Heuristic for Judging Frequency and Probability, The Hebrew University of Jerusalem and the Oregon Research Institute, 1973.

2 Stephanie Strom, “Pledge to Give Away Fortunes Stirs Debate,” New York Times, Nov. 10, 2010.

3 Eleanor Goldberg, “The Giving Pledge Is Just a Glorified Tax Break: Critics,” The Huffington Post, Feb. 15, 2015.

4 For more visit givingpledge.org.

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HOW MUCH SHOULD I GIVE TO MY FAMILY? On the Risks and Rewards of Giving

tackle the all-important issue of giving head-on. It should come as no surprise that the perceptions of giving are vastly different from the realities.

Finding Actions and Intentions in the ResearchThe primary purpose of the Merrill Lynch Private Banking and Investment Group’s “Approach to Strategies About Giving” survey was to under stand the intentions and thinking behind wealthy individuals’ decisions when it comes to their own giving. By combining the results with client experiences and the informed analysis of our team, our intention is to help wealth creators and wealth holders to put more thought and purpose toward their giving goals, and to offer the rising generation useful models to help them reap the true rewards of wealth.

With any giving, there’s both a desire to benefit the next generation and a need to be practical. In the case of wealth transfer, practicality can affect taxes and fees. The majority of those surveyed, particularly older investors with higher asset levels, want to do whatever possible within the rules to minimize their estate taxes. Consistent with this approach, 58% of investors with $10 million or more in assets have already made, or plan to make, substantial distributions before their passing.

ESTATE TAXES ARE A MAJOR CONCERN

Survey participants overwhelmingly said they would like to minimize

their estate taxes.

I believe it is reasonable to give my fair share of taxes.13%

I will do as much as possible within the rules to minimize the taxes.86%

I am willing to give more than my fair share of taxes.1%

YET PLANS DON’T ALWAYS REFLECT THE CONCERN

Although the majority want to minimize taxes, 42% of those with over

$10 million in assets noted that they would distribute them after death.

Net worth over

$10 million

27%I have a plan to distribute in life.

42%Virtually all my assets will be distributed upon my passing.

31%I plan to make substantial distributions of my assets before my passing.

Source: “Approach to Strategies About Giving.” Survey was conducted in October 2014 by Phoenix Marketing International, an independent market research firm, on behalf of Merrill Lynch Private Banking and Investing Group.

SURVEY METHODOLOGY

For Merrill Lynch Private Banking and Investment Group’s “Approach to Strategies About Giving” survey, 206 high-net-worth (HNW) individuals, with assets of $5 million or more, completed an online survey in October 2014 about their approach to giving. All respondents were at least 21 years old, had at least one child, and intended to distribute some of their assets to their children.

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Commitment to my family

My personal values

Making sure my assets are

distributed fairly among

all the recipients

Estate tax considerations

Desire to maintain

family harmony

Commitment to my

philanthropy/community-

based interests

Making sure I didn’t give too much to

any one individual or organization

Making sure I didn’t give too little to

any one individual or organization

Commitment to my friends

Other

WHAT INFLUENCES DISTRIBUTION PERCENTAGES?

WHO FIRST COMES TO MIND WHEN DISTRIBUTING YOUR ASSETS?

However, that still leaves 42% who plan to wait until death. Individuals with taxable estates may be empowered by the knowledge that there are potential tax benefits to giving during their lifetime.

The survey results also revealed that across all ages and asset levels, wealthy individuals overwhelmingly (91%) put family first when considering how to distribute their estate. For about 4% of investors, community-based interests and/or philanthropy first come to mind when thinking about giving, while 1% put friends first and another 4% say they consider family, philanthropy and friends equally. The motivations to leave the lion’s share of wealth to family members are a sense of family commitment (74%), values (50%) and fairness (44%).

FAMILY IS NO. 1

When considering giving plans, participants noted that family is the first thing that comes to mind.

It’s also the biggest influence on distribution.

74%

50%44%

39%31%

21%15%

10%1% 4%

Source: “Approach to Strategies About Giving,” Merrill Lynch Private Banking and Investment Group, October 2014.

91%My family

1%My friends

4%All are considered equally

4%My philanthropy/ community-based interests

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Aligning Actions and IntentionsThese findings reveal some disconnects between people’s goals and actions. While investors with taxable estates who plan to give while they are still alive may be better poised to minimize estate taxes (see the sidebar “Why Gift During Life?”), many don’t plan on doing so. On one hand, investors may be concerned that giving too much during their lifetime will lower the motivation of their next generation to pursue their goals. On the other, they don’t want more of their estate going to the government than necessary. The data reveal how some investors may unintentionally act in ways that run counter to their giving goals, and highlight why investors can benefit from getting extremely intentional about their giving decisions and goals—even if they think they’re already clear.

In fact, about a third of investors admitted they didn’t discuss giving with family because they were concerned that the conversation would disrupt family harmony. Put simply, many investors don’t review past decisions—both financial and familial—because it can be really hard to look back. Indeed, research shows that when investors commit to a particular course of action, it is often more appealing to continue down that path, rather than change direction.5 Our clients have reported that the process requires honesty and humility, and taking the time to reflect on past choices—whether they resulted in less than desirable outcomes or not—can be uncomfortable.

Yet families that don’t reflect on their approach to giving may simply perpetuate a course of action that may not be consistent with their desired outcomes. The question, then, is how can investors feel empowered and motivated to make the most of their giving?

I haven’t really thought much about it before 37%

Concerned the conversation will disrupt family harmony 28%

The individual has a lack of clarity around their intended purpose for their assets 26%

Fear or discomfort of thinking about their own death 22%

These conversations are too emotional 18%

Disagreement with a spouse or partner 18%

Disagreement with children or grandchildren 17%

The lack of structure in the discussions 15%

These conversations are too overwhelming, too many choices to sort through 12%

Other 9%

A DIFFICULT CONVERSATION

Survey respondents note that fear of disrupting family harmony and a lack of

clarity rank high on the list of reasons not to discuss giving.


5 In fact, seminal research in this area has suggested that commitment to a chosen path is still strong even if that path has led to negative outcomes. Source: Barry M. Staw, “Knee-Deep in the Big Muddy: A Study of Escalating Commitment to a Chosen Course of Action,” Organizational Behavior and Human Performance, Nov. 16, 1976.

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WHY GIFT DURING LIFE?

A significant number of investors don’t plan on giving until they die. And yet giving during one’s lifetime can be less expensive than leaving an inheritance at death, when estate tax is imposed. For property and assets distributed during a lifetime, both the gifted money and any future appreciation are removed from the estate. The effective tax rate is lower during life because gift tax is “exclusive,” meaning that it’s based on the value of the asset being transferred, while estate tax is based on the entire estate. In other words, the money used to pay estate taxes will itself be taxed because it’s included in the full value of the estate. Given this information, those who say they will do as much as possible within the rules to minimize taxes but plan to give at death may want to reconsider. According to Kristy Tridhavee, a wealth strategist at Merrill Lynch, “the added benefit of giving during one’s lifetime is that it can help givers maintain greater control over who receives distributions, and that the wealth holder can experience firsthand the joys of their gift and make course corrections, if necessary.”

Giving during one’s lifetime

can be less expensive than

leaving an inheritance at

death, when estate tax is

imposed.

LIFE, DEATH AND TAXESFor a couple who has used their lifetime gift-tax exemption of $10.86 million,

giving an additional million dollars during their life may be more advantageous

than including it in a taxable estate. Under these assumed conditions, the effective transfer-tax rates would be 28.57% and 40%, respectively.

At Death

Taxable Bequest $11,860,000

Less Federal Exemption Per Couple $(10,860,000)

Adjusted Taxable Bequest (ATB) $1,000,000

Top Estate Tax Rate 40%

Estate Tax $666,667

Total Cost of Bequest $1,666,667

Effective Tax Rate of ATB 40%

During Life

Taxable Gift $11,860,000

Less Federal Exemption Per Couple $(10,860,000)

Adjusted Taxable Gift (ATG) $1,000,000

Top Gift Tax Rate 40%

Gift Tax $400,000

Total Cost of Gift $1,400,000

Effective Tax Rate for ATG 28.57%

Please consult your tax advisor. The above illustration demonstrates the transfer tax advantages of giving during life versus at death. There are other important considerations, such as assets inherited from an estate receive an income basis step-up equal to the date of death value. Before making lifetime gifts, a donor should consider the potential value of the basis step-up and potential post-gift appreciation. You should consult your legal and/or tax advisors before making any financial decisions.

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Although about half of those surveyed felt confident that the rising generation would feel empowered by inheritance to achieve their goals, the other half said that wealth could deter recipients from achieving their full potential if they received too much. In fact, the higher their assets, the more likely respondents were to worry about giving too much to an individual or group.

What’s more, the idea of too much may be a particular concern for investors who haven’t figured out what their wealth is for. In fact, 24% of investors say they have not documented or discussed the intended purpose of the wealth they plan to pass along. However, the data also suggest that planning and professional support can help alleviate concerns about giving: 35% of investors say that the involvement of a trusted advisor would help them feel more confident about their giving decisions.

II: The Risks and Rewards of Giving

FOR MANY INVESTORS, GIVING to the rising generation is fueled by a

commitment to family, fairness and a desire to help others pursue their

purpose and passions. For some, that may mean giving their children what

they themselves never had. For others, it may mean that using the funds to

help start a business or support a cause.

HOW MUCH IS TOO MUCH?

When asked to rank their concern about leaving “too much” for their rising

generation on a scale of 1 to 10 (10 being the most concerned), one out of four

respondents ranked themselves within the highest level of concern (7 to 10).


34% 12% 7% 22% 25%

Not At All Concerned (1) Concerned (10)

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Finding the Crossover PointMany investors ask us: At what point does a well-intentioned gift do more harm than good, by sapping the recipient’s motivation to succeed on their own? Givers are referring to a crossover point, where wealth distributions are more likely to bring about negative, rather than positive, outcomes. In other words, exactly how much is too much to give?

How Much Is Too Much?When trying to pinpoint a crossover point between too much and not enough, investors often think of dollar amounts rather than impact. Imagine one child were to be the sole heir of an estate. For families with an estate worth $100 million, our research showed that on average, an inheritance of $26 million was considered too little to give for one child, while an inheritance of $63 million was considered too much. But averages don’t tell the whole story. There was no majority agreement on what constituted too little or too much.

So what does “too much” really mean—not just in terms of dollar amounts but in terms of its impact? Nearly half (46%) say too much is when the money creates a disincentive for individuals to achieve their full potential.

Instilling stewardship Work with the rising generation to help them understand their role as stewards of wealth, and their unique position as a link between generations. A spirit of collabora-tion leaves space for both honor ing your wishes and bringing in the voice of the current generation.

Creating guidelines for legacy The best way to ensure a legacy of giving is to provide clear guidelines for present family members, the people who will be responsible for carrying out your intentions. Families may want to consider creating a video as an effective way to share guidelines.

Building restrictions Consider placing tight restrictions on funds earmarked for education or other specific purposes. Research has shown that younger individuals actually like the idea of restrictions more than their older counterparts do.*

GIVING TO YOUR KIDS’ KIDS (AND THEIR KIDS)

It’s important to take an individualized approach to giving and consider each recipient, but what happens when investors give to generations not yet born? For some investors that may mean starting a dynasty trust for education or leaving a business to future generations. How do investors prepare for multigenerational giving when it means that they won’t be meeting some of the recipients of their wealth? Families can formally structure giving by:

* Can You Make the Money Last? The Road to Sustainable Wealth, Merrill Lynch Private Banking & Investing Group, 2014.

At what point does a

well-intentioned gift do

more harm than good?

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When it provides a disincentive for the recipient to achieve their full potential 46%

It depends on the individual or organization receiving the assets 35%

When it provides the opportunity for the recipient to live in “perpetual leisure” 28%

No amount is too much 22%

Any single recipient shouldn’t receive an outsized proportion of the overall estate 20%

It depends on the values of the individual giving the assets 20%

When enough is not redistributed to the community via philanthropic gifts or estate taxes

6%

The dollar amount shouldn’t be too high 5%

Other 2%

DETERMINING JUST HOW MUCH IS TOO MUCH

Survey respondents think too much money would stifle individual potential and

encourage a perpetual life of leisure, among other concerns.

Similarly, 28% say too much is when the recipient can indulge in a perpetual life of leisure.

Then, it’s important to ask who is receiving the gift. Consider that 35% of investors in our research say that the definition of “too much” depends on the individual or organization receiving the assets, and more than 60% are concerned about the negative impact on a particular individual or group of individuals. When it comes to how much is too much, it appears that there may be no one-size-fits-all answer.

To help families discover where their own crossover point lies, we’ve created a decision-making framework that puts the individual first. This model may help you think about how much may be too much—for the rising generation in your family.


$26M

$63M

TO

O M

UC

H

TO

O L

ITT

LE

$100

MIL

LIO

N


$63 million was, on average,

considered too much to give

one child.

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III: A Model for Giving Consider the wealth creator who told us about an experience that exposed both a digital- and financial-knowledge gap between her and her next generation. Hoping to instill a sense of the meaning behind a hard-earned dollar, she asked her son to work a summer job. When he returned to school in the fall, she asked him what he was going to do with the money he had earned. The question uncovered that her son assumed the job experience was the goal, not the meaning of money. Because of this, he hadn’t investigated how he was being paid or where the money was going, assuming that the money was automatically being deposited into his account. In fact, his employer had been sending his checks to another family address, where they remained uncashed. Since there was never a shortage of money in his account, and the meaning of the earned money was not actively addressed, it was never a necessity for him to take responsibility for how he was getting paid.

On one level, this is a classic example of how financial literacy doesn’t naturally translate from one generation to the next. Basic money management skills like writing and cashing checks are rapidly becoming obsolete, as new technologies bring banking and money management further into the digital realm. On another level, it illustrates how the risks of giving too much aren’t always made explicit—even for well intentioned families who have done the work to teach financial literacy and the meaning and purpose of wealth.

Following are five key factors to assess the risks and rewards of giving. As you read, you may want to think about particular members of your family and how each factor pertains to them. This in turn may help you determine the level of risk involved in giving—and to structure your gifts accordingly.

A child who suffers from a dependence habit, an addiction for example, may also need special assistance, but giving directly may not be the most effective choice. Before thinking about giving, families may want to first structure how they plan to support recovery.6 That’s when highly specific factors like the type of addiction, personal accountability and family liability may come into play. There’s no silver-bullet solution for recovery, which is why setting boundaries and making decisions around it often require the help of other experts, such

The risks of giving too much aren’t

always made explicit—even for well-intentioned

families who have done the work to teach

financial literacy.

WHAT IF MY HEIR HAS

SPECIAL NEEDS?

Although many families can benefit from using this decision-making model, there are unique situations that may call for families to prioritize giving in very different ways. A child with a mental or physical impairment who is unable to live independently would unquestionably need targeted financial support.‡

‡ “Family Comes First,” Merrill Lynch Advisor, Nov. 2014.

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as attorneys and psychologists. These issues fall outside of this decision-making framework, as each family requires its own personalized model.

The Five Factors of Decision-Making

1 MAKE VALUES EXPLICITWhen heirs spend carelessly, it’s often because they lack a clear idea of

the underlying values and responsibilities that wealth represents. One of the most common direct quotes we hear from frustrated parents is that their child spends with a mentality that “money grows on trees.” That’s why wealth creators and holders are better poised to make decisions about giving when the primary purpose of wealth is made explicit to family members.

One way families can reframe their views about money is by talking about their history, such as the wealth creator’s or holder’s road to wealth, what drove them to succeed, and the challenges they faced along the way.7 For some, this may mean sharing stories about scraping by or struggling to start a business. These stories can sometimes reframe attitudes immediately: One wealth creator we worked with revealed to his children that he grew up literally starving, and that his motives for building wealth were that his offspring—or any other child for that matter—would not experience the same pain. His children then committed themselves to more intentional and responsible financial behaviors.8

These authentic experiences tend to make heirs feel closer to older generations, which in turn builds gratitude and respect.9 When a member of the rising generation sees himself or herself as part of a legacy rich in

6 William F. Messinger, JD, LADC, “Family Support and Addiction Management for Long-Term Success: Practical Advice on Achieving High Recovery Rates for Affluent Alcoholics and Addicts,” National Network of Addiction Professionals, 2012. See also Tess De La Mare, Kicking the Habit, Campden Wealth, February, 2014.

7 For more information on this type of approach, see “Family Communication,” The Journal of Communication and Education Language Magazine, February 2015.

8 To understand the impact of storytelling on attitudes and behavior, see Elinor Ochs, Carolyn Taylor, Dina Rudolph and Ruth Smith, “Storytelling as a Theory Building Activity,” Discourse Processes, November 2009.

9 “Leaving Your Legacy: Sharing Your Family’s History,” Merrill Lynch Private Banking and Investment Group, 2014.

DISCUSSING ASSETS—AND THEIR PURPOSE

Three out of four respondents have discussed what assets they plan

to leave. Yet only 43% noted that they have discussed the purpose

of those gifts.

Have had discussions about both what I plan to leave and the purpose of those assets.

Have only had discussions about what assets I plan to leave.

Have not had discussions about either with others.

Have only had discussions about the purpose of the assets I plan to leave.

39%

37%

20%

4%

QUESTION: Do you Agree that

you’ve Defined the Intended

Purpose of Gifted Assets?

Strongly Agree

Strongly Disagree

16%

5%

23%

56%


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Health issue 56%

The death of a friend or family member 43%

An initial discussion with a trusted advisor or financial professional 34%

Birth of a child or grandchild 31%

An age-related event (e.g., birthday, transitioning from full-time work, etc.)

31%

Having seen or experienced the negative effects of money that is not associated with a clear purpose

28%

A positive financial event 27%

Desire to maintain family harmony 24%

Having seen or experienced the positive effects of money that is associated with a clear purpose

22%

An initial discussion with a family member 19%

A negative financial event 11%

meaning, not just assets, it can take a much higher dollar amount to reach the crossover point of too much—the point where wealth starts to disempower rather than empower. Adding meaning to money can help an individual see a dollar amount and understand the blood, toil and tears behind it.

2 DETERMINE RECIPIENTS’ RESPECT FOR WEALTH The rising generation tends to have a greater sense of ownership of

family money when they’re included in family discussions about wealth and develop financial literacy over time.10 In turn, they’re more likely to view distributions as a privilege and themselves as stewards of wealth, rather than just inheritors.11

On the other hand, consider the grandchild who thinks of her grand-father’s monthly distributions as her paycheck. Because of a sense of entitlement to family wealth, an heir like her may be less likely to utilize the money thought fully. When determining a crossover point, considering how an heir regards wealth—as a privilege or as an entitlement—can help families figure out how much is too much.

3 ASSESS EMOTIONAL MATURITY

Education and life experience often bring about a deeper understanding of the value of money. As young adults come into their own, they become better poised to grasp lessons about earning, saving and spending. However, maturity and age don’t always correspond, so it’s important to take both a beneficiary’s life stage and behavior into account.

If a gift recipient has a track record of irresponsible spending, giving may entrench that or other negative behavior and lead to increased

LIFE CAN DRIVE DECISIONS

Discussions about giving are all too often prompted by health issues

or a death. Here’s what the survey told us prompted discussions:


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dependency on family wealth. However, a recipient who demonstrates accountability and ownership around wealth is more likely to see it as a means to pursue purpose and independence.

4 DEFINE FAIRNESS FOR YOUR FAMILY

A quarter of respondents consider equity and/or fairness the top considera-tions when deciding how to distribute assets among their heirs. Yet fairness means different things to different people. Some may define it as giving equally to all. For others, it may mean giving more or less depending on each individual’s purpose and income. The important thing isn’t whether all recipients get balanced inheritances, but that they understand the distribution process.

An aspiring entrepreneur who uses family money to start an unstable business venture and lacks the training to get it off the ground may not get the same distribution as an aspiring entrepreneur who has developed leadership skills, demonstrates independence, and has built a solid team to grow a new business. It’s not that either scenario is right or wrong, but that each family decides how to use the money wisely, and ensures that heirs understand the thinking behind decisions around wealth.

5 ACCOUNT FOR PASSION AND PURPOSE Wealth allows the next generation opportunities to pursue their passions.

When considering the fine line between empowering and undermining, the crossover point has a lot to do with an individual’s mind-set and personal motivations. These can be tricky to pin down, but actions tend to speak loudly. Take an heir who wants to pursue a career in the arts: Is she able to articulate a plan for reaching her goals? Has she shown initiative to develop the skills that will help her succeed, or does money intended for her passion end up going toward other things? Answers to these questions may help the giver determine what level of support can help provide her the freedom to pursue her passion, without stifling the sense of diligence and self-reliance necessary to reach her goals.


THINKING ABOUT WHO GETS WHAT

What factors do the wealthy consider when determining gift percentages?

38%

30%

18%

11%

9%

I want to be fair to everyone.

I made these decisions a long time ago and haven’t reviewed them recently.

I realized I may need to rethink my allotment.

I haven’t explicitly defined or documented what I’m giving to others upon my death.

I haven’t really thought much about it before.

10 “Can You Make the Money Last? The Road to Sustainable Wealth.” Merrill Lynch Private Banking and Investment Group, May 2014.

11 Based on the idea of James E. Hughes Jr. that members of the rising generation will either view themselves as “inheritors” or “stewards.”

For more tools on the decision-making model, visit PBIG.ML .COM/HOWMUCH

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Visit PBIG.ML.COM/HOWMUCH for an extended version of this example, and more about options for funding education.

“HEMS” AND THE IMPORTANCE OF DOCUMENTING PURPOSE

After the passing of a wealth creator, a family gathered to ponder big decisions about the stewardship of the wealth entrusted to them. With no letter of wishes or documented guidance on the why behind the gift, they were desperately seeking an understanding of the purpose of their wealth. They scrubbed the estate plan for any hints of the creator’s intent, with little gained. The plan provided for what attorneys call the “HEMS”—standards: health, education, maintenance and support. They even summoned the drafting estate attorney out of retirement to share his recollection of the wealth creators’ intentions. If wealth holders had a front row seat to see what was playing out, appreciating how important an understanding of purpose is, they would drop everything and make the time to articulate and document their purpose of your gift. The example above shows a different approach—one with extreme clarity on how money should be used.

GIVING AND YOUR LIFE PRIORITIES When a couple in their sixties decided to make a substantial gift to their children and grandchildren, they made plan to give $4.25 million—an amount that felt comfortable based on their own retirement needs, lifestyle and portfolio. With their advisor, they worked to align the money with their goals and priorities for their family, ensuring that certain amounts would be set aside for important life events, such as paying college tuition, buying a home and starting a business.

When it came time to communicate the gift to their next generations, the couple decided to tie each distribution and life event to their family’s highest values. “This is an example of how families can meld their values and priorities into smart, tax-efficient strategies,” says Kristy Tridhavee, a wealth strategist at Merrill Lynch. ”When families act with intention, they are able to connect financial gifts to concrete goals.” Talk to your advisor about working through a plan for your family.

Gifts aligned with goals have quantitative benefits, especially for those who are willing to give during their lifetime. They can be more tax efficient (see “Life, Death, and Taxes:” on page 6), and any future appreciation goes directly to the recipients, rather than the giver’s taxable estate.

We value creating a beautiful and safe space to put down roots in our community and raise our family.

$250,000 one-time gift per family member. (Unused funds go to an investment account for the individual.)

HOME PURCHASE

We value gifting our time, intellect and money to have a positive affect on others.

$500,000 in a donor-advised fund for the family to gift collaboratively over the next 25 years.

FAMILY PHILANTHROPY

We value healthy lifestyles, and we set aside an emergency fund for the unexpected.

A one-time $20,000 gift per family member

HEALTHCARE

TRAVEL AND EXPERIENCE

We value learning through experience, and understanding different cultures.

$2,000 per family member for travel every two years. (Unused funds are rolled over for future travel.)

We value education and lifelong learning and the pursuit of purpose.

$40,000 a year, for six years of college and post-grad education for all grandchildren.

HIGHER EDUCATION

We value strong family relationships and making time to be together.

$2,500 per family member every two years. (Unused funds are lost.)

FAMILY REUNION

FAMILY GIVING

HEALTH WORK

LEISUREHOME

Reflects funding for two children and four

grandchildren. Funding for spouses includes travel and

family reunion.

$4.25 MILLION GIFT

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STACY ALLRED is managing director and wealth strategist leading Merrill Lynch’s Center for Family Wealth Dynamics and GovernanceTM. Allred supports multi generational families in navigating the opportunities and

challenges of wealth with intention. She uses a values-based framework to align financial and estate plans and help prepare the rising generation. She earned her B.S. in accounting and business, and received a master’s in taxation, with distinction, from DePaul University.

MICHAEL LIERSCH is head of behavioral finance and goals-based development at Merrill Lynch Wealth Management, where he leads the behavioral finance initiative. He has been a visiting professor at NYU’s Stern School of Business, and his

research has been published in top psychology journals, including Psychological Science and Journal of Marketing Research. He earned his Ph.D. in cognitive psychology from the University of California, San Diego, and his A.B. in economics from Harvard University.


THE WAYS WE PASS ON PURPOSE

Overall, survey respondents reported they most frequently communicate the

purpose of wealth via estate plans, trusts and wills.

A trust and estate plan 63%

A will 61%

A conversation with those who will receive the gifts 29%

Have not explicitly defined and documented the intended purpose 18%

A written document (e.g., letter) describing the intent of the gifts 16%

Values statement articulating the meaning of money to you 3%

A video describing the intent of the gifts 2%

Other 2%

Tie It All TogetherHoning a giving strategy may feel overwhelming, so start with small, concrete steps.

1 Revisit any documents you have already created concerning distributions and any defined plans for passing along assets. Look at what’s already in place, even if it needs to change. Being knowledgeable about your situation can increase confidence throughout the process.

2 Whether you currently plan to give during life or after your passing, you may want to consider some combination of the two.

3 Open up lines of communication with your family as you incorporate the decision-making model put forth in this paper. While many investors in our research—over 60%—say they have defined their intended purpose for assets they plan to pass along via a will or trust and estate plan, only 29% say that they have had a conversation with those receiving the gifts. Far fewer have articulated their intended purpose via a letter (16%), a values statement (3%) or video (2%).

When families allow inertia to move them along, discussions around wealth tend to occur only at big life junctures, such as an illness or the death of a close friend. Then, it may be too late. Talking about wealth with intention can affect how distributions are perceived, and ultimately spent. Giving is an evolving process, not a one-time decision. As families of wealth work toward their best giving strategy, they’ll also pass down personal values, a commitment to family, and a respect for wealth—and those are things that the rising generation can never have too much of.

The article was authored by Michael Liersch and Stacy Allred, and is provided for informational and educational purposes only. The opinions, assumptions, estimates and views expressed are those of the authors, and are, as of the date of this publication, subject to change, and do not necessarily reflect the opinions and views of Bank of America Corporation or any of its affiliates. The information does not constitute advice for making any investment decision or its tax consequences and is not intended as a recommendation, offer or solicitation for the purchase or sale of any investment product or service. Before acting on the information provided, you should consider suitability for your circumstances and, if necessary, seek professional advice.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

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