Time for a Conversation about Wealth
Time for a Conversation about Wealth

Time for a Conversation about Wealth

 

By:

Shannon L. Stevens
Shannon L. Stevens
Trust Services Director
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Time for a Conversation about Wealth

Why families can’t afford to stay silent about their estate plan.

Scott was born two years before Deanna. He always wondered if Deanna was the favored child, though, especially after his rocky young adult years. Now a husband and father, who was recently promoted to management in his job, Scott was on track. But when both parents passed away his nagging fear that his parents loved him less flared. His inheritance was locked up in a trust, while Deanna’s was given outright. Never having a conversation about how the wealth would be transferred, the provision was a shock—and forever made Scott question his parents’ love for him.

A simple conversation might have revealed the “why” behind their decision, which was rooted in love and care. But the failure to communicate forever clouded the relationship.

While we live in a world of constant conversation—from social media to texting—too many families are missing out on an important conversation about wealth: How will our assets be transferred in our family?

They simply don’t make the time or space for a conversation about wealth.

Failing to discuss how a family’s estate will be transferred can be a costly mistake. While many spend significant time and money thinking through and creating an estate plan—so they can have an orderly distribution of assets after their passing—too many remain silent about those plans. The risk is the chance of unrealistic expectations and conflicts within the family when administration occurs, undoing many of the benefits of the estate plan.

Communication Breakdown

George Bernard Shaw famously said, “The single biggest problem with communication is the illusion that it has taken place.”

This is too often true when it comes to estate plans.

A 2016 Fidelity® Investments Family & Finance Study found that 69% of parents believed they had a detailed conversation with their children regarding their estate plans, yet 52% of the children said the conversations had not occurred. Similarly, 67% of families disagree about the appropriate time to even initiate a conversation about wealth, including estate planning.

Why are families so reluctant to have a conversation about wealth, specifically how assets will be passed to future generations?

Privacy and fear of conflict are two of the more common reasons to delay or avoid a conversation about wealth transfer. Some believe it is no one’s business and do not want family members knowing how much wealth is in the family. If their children know too much too soon, they reason, they will rely on their financial safety net instead of working hard to make, invest, and grow their own money. In short, they expect their children to make their own way and their own money, without their help. The underlying assumption is, “What they don’t know can’t hurt them.”

Others take the “they can fight about it after I’m gone” approach. Parents may fear conflict with their children because their children will disapprove of how they are choosing to distribute their wealth, or the distribution method dredges up underlying family issues. So, they avoid active (potentially awkward) conversations—and pretend everyone is on the same page.

What’s the Risk?

The problem is that not discussing wealth distribution plans can backfire when it comes time to transfer the wealth. Children can be resentful at being left in the dark and feel blindsided if the estate plans do not align with their expectations. Often children are surprised that the assets are more or less than they anticipated.

Some beneficiaries are shocked by the manner wealth is dispersed.

For instance, children may be surprised to learn after the parents have passed that their funds are in a trust as opposed to outright distributions. Similarly, problems can ensue when one child learns after the parents’ passing that his/her inheritance is tied up in a trust with restrictions, whereas another child receives a distribution outright. This can lead to resentment among siblings and consequently damage the family unit.

In extreme cases, estate plans not grounded in good communication can open the door to litigation among family members who feel the distributions are unfair or who challenge the merit of the estate plan. As a result, assets can be locked up in litigation for years, chipping away at family unity as well as the overall value of the estate.

The Transfer of Boomer Wealth – Now Is the Time for Conversation

The largest transfer of wealth in history will occur when Baby Boomers begin transferring their wealth to future generations. This makes communication of estate plans all the more important as this transfer begins.

Understanding expectations is particularly an issue with the Boomer transfer of wealth. Boomers need to truly understand the expectations of their Gen X (approximately born between 1965-1979) and Millennial (1980-94) children; similarly, the children understand the reality of the Boomer’s estate plans.

Gen Xers and Millennials, the most likely recipients of the Boomer wealth, have faced challenges in optimizing saving and investing, which could lead to an increased dependency on (and expectation of) an inheritance. Children from these generations are often strapped by student loans and many lost jobs during the 2008 Great Recession, just as they were getting rolling with their careers.

Adding to their financial burden, many had already purchased homes (sometimes out of their limits because of the leniency of mortgages) that then lost significant value. Unlike their parents’ generation, many do not have pensions, and many have fears about what Social Security will look like when they retire. And then there’s always increasing health care costs.

Some children from these generations may expect an inheritance to see them through their retirement. But if the Boomer parents have other distribution plans in mind or need to spend more funds than expected on their own care as healthcare expenses and life expectancy increases, there is the potential for a bumpy road in transfer of these assets.

However, communication today will help set realistic expectations for tomorrow, and reduce risks of problems when the transfers occur.

Building a Plan for Conversation

Where does a family begin this conversation?

First, a family needs to understand the risks of failing to discuss estate distribution plans and consider such conversations an integral part of an overall estate plan.

From there, the family needs to determine their comfort level with starting the discussion. Some opt for a slow introduction to the financial and estate plans with future generations, whereas others prefer to fully disclose the plans. Each conversation will be unique. Starting the conversation is the most difficult part, though once conversations begin, they often gain momentum, making future conversations easier and easier. In many cases, a financial advisor can facilitate the beginning of those discussions and guide a family through difficult discussions.

While it may not always be easy, it’s important to remember that it is always time for a conversation, so your wealth is handled in the best manner possible, and your family—whom you cherish the most—remains intact.

 

Tags:  Baby Boomers, Children and Money, conversation about wealth, Estate Planning, Generations and Wealth, Inheritance, Money Talk, Multi-generational Wealth, Older Children and Money, Passing on Inheritance, Talking with Children About Money, Transfer of Wealth, Trust and Estate Services, Wealth Transfer

Note:  The content of this article is for guidance and information purposes only and is not intended to be construed as advice. Information provided is not intended to provide investment, tax, or legal advice.