People who own their own businesses feel they have the ability and a responsibility to create jobs and opportunities for others, according to new findings from the 2012 U.S. Trust Insights on Wealth and Worth Survey™ released today. When it comes to their own estate and business planning, however, many business owners are missing important steps that could unintentionally jeopardize their business, employees and family financial security.
“Some of the most successful business owners and entrepreneurs in history have been driven by a desire to change the world and improve the lives of others,” said Keith T. Banks, president of U.S. Trust. “The country was founded on that spirit of entrepreneurism, and it is a tremendous engine of economic growth and prosperity. Yet many business owners are so caught up in what they are doing that they often don’t envision a world without them in it. By not anticipating risks or a change in circumstances, they unintentionally may put the financial security of their families and employees at risk, despite their best intentions.”
U.S. Trust’s research found that high net worth business owners have generally weathered the current economic cycle with optimism and focus on the future. The survey found:
- Nearly three-quarters (72 percent) said that, as business owners, they feel they have a responsibility to create jobs, and 76 percent feel an obligation to keep people employed even if it means lower profits.
- Two-thirds (66 percent) of business owners – twice as many as non-business owners – say they feel empowered to make a difference by their ability to create opportunities for others.
- Roughly half (55 percent) of business owners have started, acquired and/or made substantial investments to expand their business since 2008. One-half said they have not made any significant changes.
When asked about plans to grow their business, only about half (55 percent) of business owners said they are holding back because of economic and regulatory concerns. Even fewer cited access to credit (28 percent) or availability of start-up funding (15 percent) .
The nationwide survey of more than 600 high net worth individuals found that people who own their own businesses are generally wealthier and earn higher incomes than those who don’t. Most (68 percent) created the majority of their wealth on their own by working for it. They attribute their success to a combination of passion, intelligence and an entrepreneurial spirit, and a majority (52 percent) see themselves working indefinitely, including 46 percent of business owners over the age of 67 who said they have no plans to retire any time soon.
Business owners need more sophisticated wealth and estate planning
For the 2012 Insights on Wealth and Worth study, U.S. Trust surveyed U.S. business owners with at least $3 million in investable assets, and nearly two-thirds who have assets greater than $5 million. U.S. Trust’s research found evidence that many business owners do not have wealth and estate plans that reflect their position and personal wealth:
- More than half (55 percent) of all business owners surveyed have not established a formal succession plan for their business, including 43 percent of those over the age of 67.
- Six in 10 business owners surveyed do not have a comprehensive estate plan. In fact, they are slightly less likely than non-business owners to have the basics such as a will, healthcare proxy or a named durable power of attorney.
- One in three business owners has established a life insurance trust.
- Three-quarters (77 percent) of business owners say it is important that they leave a financial inheritance to their children or grandchildren. Forty-six percent already have transferred assets to a trust set up for future generations.
- Nearly half (48 percent) are not using any type of trust to protect or transfer their financial assets to heirs, their business or charitable beneficiaries. The biggest reason? Forty-two percent said they just haven’t gotten around to it.
- One-third of business owners who haven’t established a trust say they don’t see the need for a one because they are under the impression that a will is sufficient to carry out their wishes.
- Fifty-four percent of business owners say they consider the most important goal of an estate plan is to minimize estate taxes. Yet fewer than half have taken, or plan to take, steps to reduce the size of their taxable estate in advance of potential tax law changes that could raise estate taxes.
In families that rely on a business and the business owner’s role in the business, estate planning, business succession planning and financial planning require special considerations.
“The business is often the primary source of wealth and income for the family, and financial responsibilities and risks often extend well beyond immediate family members to include parents, grandparents and siblings. The modern American family comes in all shapes and sizes, and managing the dynamics of extended, blended and single-parent families or any special health, financial and emotional circumstances can have a big impact on planning needs,” added Banks.
One-half (51 percent) of business owners surveyed by U.S. Trust say they feel a financial responsibility for less fortunate family members. As a result, business owners place a high priority on remaining financially independent and protecting their financial assets and the continuity of income for their families or spouse, especially if they were to have health issues that might require the need for long-term care. Nearly four in 10 business owners surveyed, however, do not have a financial plan in place to cover the cost of long-term care, and only 40 percent have purchased long-term care insurance.
Other Business Owners
Additional information about the 2012 U.S. Trust Insights on Wealth and Worth survey can be found at www.ustrust.com/survey.
U.S. Trust’s 2012 Insights on Wealth and Worth Survey 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.
U.S. Trust, Bank of America Private Wealth Management is a leading private wealth management organization providing vast resources and customized solutions to help meet clients' wealth structuring, investment management, banking and credit needs. Clients are served by teams of experienced advisors offering a range of financial services, including investment management, financial and succession planning, philanthropic and specialty asset management, family office services, custom credit solutions, financial administration and family trust stewardship.
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