Inheritance under pressure: why purpose matters from the start

With about $105bn expected to pass to younger generations by 2048, a growing number of inheritors will find themselves responsible for substantial new wealth. This transfer of wealth can come with pressure: inheritors may need to make important decisions before they have had a chance to work out what they want their money to achieve.

But new research finds that a large inheritance does not always buy the inheritor more time. In a survey by Capital Group, those with a large inheritance (above $25mn) were nine times as likely than those with a smaller one (under $500,000) to have made important financial decisions within four weeks. Across all inheritors in the survey, only 18 per cent felt very comfortable making decisions during those first few weeks.

This creates a tension in inheritance management. A “decision clock” starts immediately, ticking fast, while the “purpose clock” moves more slowly as inheritors define their priorities and values. Can financial advisers help inheritors to match their decisions to their purpose by synchronising these two clocks?

Complexity and urgency are a difficult combination

Inheritance often involves complex and illiquid assets such as business interests, real estate and digital assets. These may require valuations, governance decisions or other immediate actions. It also coincides with bereavement and in some cases a sudden increase in responsibility. This combination of complexity, emotion and urgency could make even financially experienced inheritors hesitate.

One of the first tasks for financial advisers is to distinguish time-sensitive choices from decisions that would benefit from reflection. “In those first few weeks, advisers need to identify the legal, tax and other time-sensitive issues that require attention,” says Viana, Head of Wealth Transfer at UBS Global Wealth Management. “Only after that can they create the space for inheritors to consider what wealth actually means to them and what they want to achieve.”

Early advice can help define priorities

Defining long-term priorities and establishing a strategy to meet them can take time. Inheritors participating in Capital Group’s research say they want to build and expand businesses (61 per cent), achieve financial independence (58 per cent) and generate strong financial returns (57 per cent). But only about one in five say they have fully achieved their various objectives.

Early engagement from advisers can help. Seven in 10 inheritors say advice received soon after inheriting shaped how they ultimately used the wealth and made investment decisions. If possible, younger inheritors in particular can start preparing even before they receive any assets. Gradually taking responsibility for smaller financial decisions can build the judgement they need for more strategic choices.

“Financial decision-making is a muscle that you train,” says Michael Viana, Head of Wealth Transfer at UBS Global Wealth Management. “So building financial confidence is as much about practising decisions as it is about understanding the tools available.”

From values to investment choices

More than half of inheritors say investing in line with their personal values is a priority, and environmental sustainability, family legacy and social impact are considerations cited in the research. But only 31 per cent say their investments closely reflect their personal values. And many feel they missed opportunities: 60 per cent wish they had invested more in securities or retirement accounts.

The challenge for inheritors is to turn their values into an investment strategy. Advisers need to make trade-offs explicit, or inheritors might either rush into investments that do not fit their objectives or pass on opportunities.

“Advisers need to go beyond transactional questions and build a clear understanding of the client’s life goals, passions and what they want their legacy to be,” says Wenxian Yeo, Head of Wealth for Asia South and CEO of Citibank Singapore.

Creating a tailored roadmap

Successful inheritance outcomes are less about eliminating uncertainty than learning how to make decisions within it. Nearly all of those having achieved their stated priorities say the professional advice they received soon after the inheritance shaped how they used it and made investment decisions. They were also nearly twice as likely than average to make decisions within a few weeks, and to be comfortable enough to act on the advice they received.

Advisers cannot remove the need for prompt decisions, and they should not rush inheritors into deciding their long-term goals. Instead, their role is to create a tailored roadmap that separates what needs immediate attention from what can wait.