Posted: June 25, 2013
Talk’s not cheap when it comes to family money
It's key to establishing a legacyBy Marti Brust
Money used to be a taboo topic—one that past generations would never dream of discussing with their children, let alone their grandchildren or other potential heirs. Today, the mindset is much different. Many not only want to discuss this but are also working with their wealth advisors to include a communication strategy within their overall estate plan.
Why the big change? Factors such as new wealth, more complicated investing vehicles and legacy desires are a few. However, lessons learned are also a contributor. Many individuals have witnessed through other family members, friends or colleagues the challenges that can come with unexplained inheritance structures, parameters and instructions. Forming a communication plan to help relay the strategy to the beneficiaries before death can eliminate confusion, frustration and sometimes even hurt feelings, resulting in a successful transition for all involved.
And as individuals and wealth managers plan for a monumental wealth transfer over the next four decades, an estimated $30 trillion in financial and non-financial assets in North America alone, open communication and intentional dialogue need to be considered a critical component of a successful wealth transfer strategy.
With Money Comes Responsibility
First, educating the beneficiaries on the responsibilities that come with inheriting wealth is important to many, particularly for those who have created their wealth. As these individuals formulate plans and strategies to bequeath the assets they have personally earned, they often have a strong desire to structure a plan that will provide financial security and stability for not only their immediate heirs, but for future generations as well. In short, they want to help ensure the younger generation will take on the leadership of those assets in a meaningful and forward-looking way.
Start the Conversation Early
Ideally, these conversations would begin at an early age. Children need to be old enough to understand the information and why it’s being shared, but initial talks for specific areas, such as philanthropy, can begin as early as grade school. For example, families who have assets that are earmarked for charity every year can involve children in selecting the recipients by asking them to make recommendations for causes and organizations that are important to them.
As children enter the high school years, financial advisors can help introduce fundamental information on items such as budgeting and personal cash flow management. Then as they enter their early to mid-twenties or perhaps later, depending on other factors, conversations about the specific structure can occur.
Share the Strategy
Currently, wealth advisors generally initiate the conversation with the older generation about how they want to share their estate planning details with the inheriting generation. This is one of the most significant services wealth planners bring to the table, because they not only assist in explaining the estate plan structure, but many times facilitate the conversation about the strategy—particularly, why the plan is built the way it is.
This is important, as it is fairly common for the inheriting generation to have initial negative reactions or questions to certain parts of the plan if they aren’t provided with the background and full detail on the overall strategy. This is often seen when trusts are discussed, as inheritors may misunderstand the intent behind these financial vehicles. In this situation, the wealth advisor can be a neutral party who explains that securing assets until a certain age is a strategic step. Whether it’s done with the intent of ensuring measured wealth disbursement or enabling the inheritor to mature before accessing funds, these types of decisions are made from a comprehensive planning standpoint and with everyone’s best interests in mind.
Intergenerational wealth transfer can be an extremely complicated process from both an execution and emotional standpoint. Working with professionals who will proactively advise and assist in both the strategy as well as the communication amongst generations can be the difference between leaving a gift and establishing a legacy.
Marti Brust is a senior vice president and wealth advisor for UMB’s Investment and Wealth Management division in Denver. Marti may be contacted via email at firstname.lastname@example.org.