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Preparing the Next Generation for Wealth: Having Intentional Family Communication
Feb 28, 2020
Preparing the Next Generation for Wealth - Having Intentional Family Communication - Part 3 of 3
As “Wealth Creators” look at the estate planning process, the focus is typically driven by the tax-efficient transfer to the next generation. But this is just one half of a successful wealth transition plan. It is critical to not just prepare “the money” for the transition of wealth to the next generation, but also to prepare “the heirs” to be responsible owners and stewards of the family’s wealth.
Most of us have a few simple goals for the younger generations. We want them to be independent so they can stand on their own two feet. We want them to be good critical thinkers so they can find their way through tough times that seem to come to all of us. We want them to be prudent financially, live within their means, make solid investments and position themselves to help others.
Families that incorporate three components into their planning will increase the odds of meeting their goals and ensuring a successful transfer.
- passing on shared family values
- instilling financial literacy
- having intentional family communication
Intentional Family Communication
Family Communication
No matter how good we are at stewarding wealth, other people are almost always affected by our decisions and actions. Quite often, the people most affected are those we care the most about, including our spouses, children and grandchildren.
It is a personal preference as to how much detail of the Estate Plan to share with your loved ones, but it imperative that you open the lines of communication and convey the mechanics, including their role and responsibility.
Reluctance
Many people are uncomfortable talking about financial matters, even to relatives who have a legitimate right to know what’s going on. They feel that it is a private matter or they may be reluctant to share the specifics fearing it will foster a sense of entitlement or lead to a lack of motivation to achieve important life milestones, such as establishing a strong independent identity, going to college or pursuing work or a career.
There is also the divorce issue, which leaves some parents reluctant to have in-law children know of the wealth situation.
The truth is, secrecy surrounding family wealth can lead to a lot of confusion and problems after you’re gone. This may result in your family members administering your estate in a way that’s different from what you'd hoped would happen. Communication is not always easy, but it is worth it.
Information to Communicate
- The values, goals and intentions for your wealth – what the money is, and is not, to be used for
- Roles and responsibilities of different individuals (e.g. Trustees, Successor Trustees, Executors) and why you selected them
- Provide an overview of your estate plan (e.g. trusts, power of attorneys) and the “why” of your estate planning decisions. Explaining details is fine, but don’t think you need to turn them all into estate planning experts. Make sure you share with your heirs the principles that guided your decisions when preparing your estate plan. If they understand why you've created the plan you have, there's a lower potential for hurt, harm and misunderstandings after you're gone.
- Family Advisors: who are the key advisors such as Wealth Advisor, CPA, Estate Planning Attorney and how to contact them.
- Estate Organizer Document: provide the location and how to access the document which captures all pertinent information when needed, including:
- Assets (firm, account type, account #, titled, website, username, password, Beneficiary, Grantor, Trustee)
- Digital Assets, e.g. smart phone, computers, social media accounts (username, passcode)
- Real Estate (location, titled, type)
- Liabilities (firm/person, titled, type, account #, website, username, password)
- Insurance (firm, policy owner, policy #, type, website, username, password)
- Safe Deposit Boxes and Personal Safes (location, box number, authorized to access, key located, combination)
- Healthcare Information: any advance health care directive in place and the agent to make health care decisions on your behalf if you cannot do so.
- Let your heirs know that your wealth transfer strategy is dynamic. Over the years there may be changes in the plan. Will communicate as they occur.
Preparation
Establish agreement with your spouse on what you’ll share and what you will not share; and chose a convenient time that might coincide with a family vacation, holiday or family event.
Decide if you want to meet with all of the heirs together or separately. Argument can be made for both. Will all heirs be able to handle and process the information maturely? In some cases, separate discussions may be best if there are sensitive issues to discuss. If gathered together, everyone hears the exact same message in the same words.
And don’t forget about the spouses of your family members. They may benefit from this same education, especially in relation to discussions about prenuptial agreements and always in cases where estate plans concern their children.
Remember, the purpose of the meeting is to solve a problem – not create one. Think about which route is more likely to foster continuing goodwill among the heirs after you are gone.
Meeting
Your approach to this meeting is important. Legacy discussions are not torture; it should be approached with excitement. You should be celebrating a great accomplishment of passing on your wealth to your heirs.
Successful family meetings are intended to engage family members, not be a set of rules handed from one generation to the next. Healthy communication among family members builds trust; trust builds understanding and is more likely to achieve acceptance.
Allow time for this information to sink in and for your heirs to ask questions or express concerns. Observing children’s reactions at a meeting like this can be quite revealing about how things will go in the future.
After the meeting, have a meal together or do something fun.