The U.S. Trust 2012 Insights on Wealth and Worth nationwide survey of 642 high net worth and ultra high net worth adults found distinct generational differences in response to new economic realities, uncertain financial security, a looming elder care crisis and dual financial responsibilities for both children and parents.

• Forty percent of Gen-Xers and Gen-Yers, aged 18 to 46 versus 20 percent of baby boomers have established a financial plan for parents’ elder care needs.
• Fifty-four percent of Gen-Xers and Gen-Yers and 42 percent of baby boomers have paid medical costs for parents and other relatives.
• Gen-Xers and Gen-Yers and the generation older than the baby boomers are closely aligned in the importance of intergenerational wealth transfer, with 76 percent of those aged 18 to 46 and 73 percent of those over the age of 67, saying it is important to leave a financial inheritance to their children. The primary reasons for leaving an inheritance are to preserve the continuity of family wealth and to influence their children’s lives after they are gone. By comparison, only about half (55 percent) of baby boomers think it is important to leave a financial inheritance to their children. Among those who don’t think it is important, one in three (31 percent) said they would rather leave money to charity than to their children.

“Our survey points to a shift in generational behavior and outlook, most likely shaped by personal experience and societal responses to economic realities,” said Keith Banks, president of U.S. Trust. “The next generation has not experienced the consistently strong economic growth or investment returns that baby boomers experienced during the longest bull market in history.”

Wealth and family responsibilities: taking care of the generation before and after

With greater similarities in attitude to the generation before the baby boom, Gen-Xers and Gen-Yers are focused on the needs of the family and the continuity of family wealth, including leaving a financial inheritance to their children. They are pragmatic, proactive and disciplined in their approach to investing and wealth management, surpassing baby boomers in planning for wealth for themselves and their families.

The annual U.S. Trust Insights on Wealth and Worth study has consistently identified family harmony and financial security as top goals. Achieving these goals can be challenging amid the complexity of circumstances in families of significant wealth. The 2012 survey found that the majority of surveyed respondents (62 percent) feel that family and harmony in the home is the realm in their lives where they have the greatest ability to effect change. While the importance of family is a common denominator across all generations, U.S. Trust found that each generation emphasizes different elements of family responsibilities.

Survey highlights include:

Elder care

• Eighty-five percent of respondents said they have talked with their spouse about long-term care plans, but more than half (56 percent) have never communicated their plans with their children, and four in 10 (43 percent) have never talked with parents and older relatives about what that generation’s plans and expectations are.
• Thirty-three percent Gen-Xers and Gen-Yers, compared to only 6 percent of baby boomers, have purchased long-term care insurance for their parents.
• Thirty-eight percent of those aged 18 to 46 and 30 percent of baby boomers are personally financing the cost of long-term care for aging or infirmed parents or relatives.

Financially empowering children

• Six in 10 (61 percent) wealthy parents are not fully confident their children will be well-prepared to handle any financial inheritance left to them, with baby boomers having the least degree of confidence. Only 32 percent of baby boomers, compared to more than half (52 percent) of Gen-Xers and Gen-Yers and 54 percent of older respondents (age 67 and older), are confident their children will be prepared emotionally and financially to receive a financial legacy.
• Only 37 percent of wealthy parents have fully disclosed their family’s level of wealth to their children, and half (51 percent) have disclosed only a little. Among those who have not fully disclosed their wealth, older respondents over the age of 67 said the primary reason was because they were taught never to discuss wealth with anyone. Baby boomers, Gen-Xers and Gen-Yers are aligned in being more comfortable talking about wealth, but most either haven’t gotten around to it or are concerned that it will negatively affect their children’s work ethic.

Estate planning and intergenerational wealth transfer

• The vast majority of survey respondents have the basic elements of an estate plan including a will, a healthcare proxy/living will and a power of attorney. Yet, consistent with previous research, the wealthy – and particularly those who are younger – are underutilizing trusts. Only 51 percent have a revocable trust, and only 22 percent have an irrevocable trust.
• Despite their considerable resources, nearly six in 10 respondents overall do not have a comprehensive estate plan, including 66 percent of baby boomers, 70 percent of those under the age of 47 and 48 percent of those over the age of 67.
• When asked why they have not established a trust, U.S. Trust found widespread misunderstanding and lack of professional guidance. The top reason (43 percent) is a belief that because their wishes have been outlined in a will there is no need for a trust. Procrastination is the second-biggest reason (31 percent). Another 17 percent said they don’t think they have enough money to warrant having a trust, and an equal number said they don’t even know what the benefits of having a trust are.
• One-half of all survey respondents said that leaving an inheritance is a way to protect the continuity of family wealth. Baby boomers are less motivated by this than younger and older generations.
• Despite the possibility of tax law changes in 2013 that could increase estate taxes and lower lifetime gifting limits, many of the wealthy have not proactively taken steps to reduce the size of their taxable estate. Two-thirds (67 percent) have not made, nor do they intend to make, a financial gift to a loved one before the end of the year. Only 17 percent have made a financial gift to a charitable organization.

Approaches to growing wealth

High net worth investors continue to be cautiously optimistic about the management of their investment portfolio, given ongoing market volatility and political and economic uncertainty. Most survey respondents described themselves as independent, opportunistic and smart when making investment decisions, although nearly one-quarter (23 percent) of the youngest generation of investors described themselves as “exhilarated.”

• Not surprisingly, the youngest generation favors growth over preservation, and they are more willing to assume increased risk to achieve growth returns. Older generations are more inclined to seek asset preservation and lower-risk strategies.
• Overwhelmingly, all high net worth households believe in diversification to reduce risk over a means to market outperformance. The wealthy are more than twice as likely to say that lowering risk in their investment portfolio is a higher priority than pursuing higher returns.
• More than half (54 percent) of respondents say that customized benchmarks are a better way of measuring investment performance than broad market benchmarks. The preference for personalized benchmarks is strongest among young investors. More than three-quarters (77 percent) of youngest-generation respondents, compared to 52 percent of baby boomers and 55 percent of older respondents, value customized benchmarks.

“These three generations of wealth all approach life, and investing, from different angles that reflect their diverse experiences,” said Banks. “Understanding these generational differences is important for the wealth advisors and other professionals who guide these families, since it will enable them to better serve their clients and build stronger relationships with them.”

Protecting family privacy and security

The U.S. Trust 2012 Insights on Wealth and Worth survey also explored privacy and security, an emerging area of wealth management that varies significantly by age and experience. Those in the younger, technologically savvy generation who have grown up in an online world of digital devices and information better understand the related potential risk to their privacy and security. As a result, they are more apt to have taken actions to protect themselves, their finances and personal and physical safety. However, U.S. Trust found a generally low level of proactive activity to protect family privacy and security compared to the level of concern.

• One in three high net worth households thinks social media and personal information online have increased the risk to their family’s privacy and safety. Yet, only 13 percent have sought educational information about protecting privacy and security and only 14 percent have ever conducted an analysis of online information about themselves or family.
• Just 17 percent of respondents overall said they are concerned about privacy and safety specifically because of their wealth; however, privacy and safety concerns are associated with age. Notably, the youngest generation is the most concerned (37 percent), compared to baby boomers (20 percent) and the oldest generation (10 percent).
• Among those who are concerned, the greatest concerns about privacy/security are: financial ID theft; online theft; and intrusion of privacy. When it comes to physical safety, the youngest generation, and oldest generation, are the most concerned.

For the first time since the survey’s inception, Insights on Wealth and Worth explored differences and similarities across three generations of wealth in America. U.S. Trust began surveying the high net worth market in 1993, Insights on Wealth and Worth explores distinct differences in the attitudes, aspirations and behaviors among three generations of wealth in America: baby boomers (between the ages of 47 and 66), the generation before them (aged 67 and older), and Generations X and Y (aged 18 to 46).

Additional information about the 2012 U.S. Trust Insights on Wealth and Worth survey can be found at www.ustrust.com/survey.

Survey Methodology

U.S. Trust 2012 Insights on Wealth and Worth is based on a nationwide survey of 642 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, 37 percent have between $3 million and $5 million in investable assets, 31 percent have between $5 million and $10 million and 32 percent have $10 million or more. The survey was conducted online by the independent research firm Phoenix Marketing International in March of 2012. 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.

About U.S. Trust

U.S. Trust is part of the Global Wealth and Investment Management unit of Bank of America, which is a global leader in wealth management, private banking and retail brokerage. U.S. Trust is responsible for $333.8 billion in client balances*. The firm employs more than 4,000 professionals and maintains 140 offices in 32 states.

*Source: Bank of America. As of March 31, 2012, U.S. Trust, Bank of America Private Wealth Management had client balances of $ 333.8 billion. Client Balances consists of assets under management (AUM), client brokerage assets, assets in custody, loan balances and deposits of U.S. Trust, Bank of America Private Wealth Management clients held at Bank of America, N.A. and affiliated banks.

Bank of America

Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 57 million consumer and small business relationships with approximately 5,700 retail banking offices and approximately 17,250 ATMs and award-winning online banking with 30 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves customers through operations in more than 40 countries. Bank of America Corporation stock is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.

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