A Financial Planner’s Guide to Family Wealth Discussions

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When many advisers want their clients to start thinking about their legacy-planning strategies, they often use the axiom, “You can’t take it with you,” as a prodding point.

But I think a better conversation starter is, “What would you like to leave behind?”

You might have specific plans for transferring your wealth to your children and grandchildren either while you’re still alive or after you’ve passed on.

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Do you know whether your intentions align with their specific aspirations and challenges? Is there the possibility that your plans could sow seeds of discord?

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You’ll never know unless you have meaningful and transparent discussions with family members about these and other important financial issues.

Communicating your views about the wealth you’ve accumulated and your plans for passing it on could prevent surprises that often lead to family disunity.

A real-life example

I once worked with an adviser who was trying to deal with a rift between two sisters, Jane and Diane, that occurred after their mother, Sandra, died.

While Sandra had roughly divided her money and possessions equally in her will, she gave a silver necklace to Jane, who then gave it to her own daughter.

Sandra didn’t know that the necklace had enormous sentimental value for Diane, who remembered Sandra wearing it at family events, a tradition Diane hoped to continue.

Jane refused to give up the necklace, and since then, the sisters have not been on speaking terms.

Imagine how this situation might have been avoided if Sandra had invited Jane and Diane to discuss which of her possessions meant the most to them. Once Sandra became aware of Diane’s interest in that necklace and her “why,” she might have ensured that Diane’s wish was recorded in her will.

Why parents don’t discuss wealth

If you feel uncomfortable talking about your finances with family members, you’re not alone. A study conducted by Fidelity Investments indicated that 56% of respondents never had money conversations with their parents.

Yet, this same research indicated that four out of five parents believe it’s important to have these conversations.

Many of the clients I’ve worked with are hesitant about discussing their wealth with family members for a number of reasons.

They don’t want their kids to feel entitled. They want them to be self-sufficient. They might not feel their children have the emotional maturity or discipline to handle the information. They also don’t want to burden them.

Benefits of talking about it

These are understandable concerns. While it isn’t necessary for you to fully disclose your net worth to your children, it can be beneficial to discuss the work, saving and investing behaviors that enabled you to build your wealth.

Talk about how you plan to spend it at various stages of your life, and how you’d like your heirs to use the money they’re given or will someday inherit.

If you don’t discuss these issues with them, they’ll never know what’s important to you and the values you’d like your legacy to embody.

These priorities could change over time, which is why it’s important to have these discussions at different stages of your life. Also, consider your children’s point of view as they mature.

Start when they’re young

I recommend having initial discussions during their teenage years. This is when to teach fundamental lessons in financial literacy, such as budgeting, saving, investing and charitable giving so they can understand the true value of the money they’re earning (or being given)

When they’re high school seniors, help them understand the costs of colleges they’re applying to, how much you’ll pay for and how much they might need to pay out of their savings and 529 college savings plans, or through student loans.

This will give them a greater appreciation of the true costs of their education and hopefully encourage them to make the most of their college years.

After college

When your kids are beginning their own careers and (hopefully) leaving the nest, this might be a good time to discuss when and where your financial interests could intersect as you both progress through various stages of your life.

If you plan to fund 529 plans for their children, or give them money to help with the purchase of a first home or wedding, letting them know could ease some of the worries they might have about these major expenses.

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If you own your own business, this might be the time to find out if any of them would like to join it and grow their role over time, leading into your transition.

This is also a good time to discuss the causes you and your children care about. If you find common ground, this might motivate you to collaborate with them to develop a family mission statement that codifies your values and vision of a better world.

From there, you could decide to empower your children to fulfill your mission by establishing a family giving vehicle such as a donor-advised fund that authorizes them to recommend grants to charities that reflect your mutual values.

Approaching retirement

As you enter your 60s, it might be a good time to discuss your plans for retirement.

If you plan to move, this might be a good time to discuss the furnishings and possessions you don’t want to take with you or will ultimately pass down, so there will be no “Jane and Diane” surprises later.

Communicating end-of-life decisions

Once you hit your mid-70s, consider gathering the family to discuss your end-of-life plans.

If you’ve already made (and paid for) interment arrangements, this can remove a huge burden from their shoulders.

If you’re completing or are in the midst of updating your estate plan, this also might be a good time to determine the timing for wealth transfer decisions.

For example, if you discover that any of your children are struggling to make ends meet or pay off debt, you might decide to give them some of their inheritance before you pass on, when they need it most.

It’s also good to let all your children know if and when you assign one or more of them to critical end-of-life roles, which might include power of attorney or health care proxy or designate them as executor or successor trustee.

Another real-life example

I once helped a couple, Tom and Sue, finalize their end-of-life decisions. However, after having a family discussion, it became evident that some modest tweaks to their ideas were needed.

They originally planned to divide their wealth equally into two identical trusts for their sons, Brian and Andrew.

Each son would be the trustee of the other’s trust, which meant if either needed a distribution, they would have to ask for approval from the other.

After lengthy conversations with the family, I learned that while Brian was excelling in his career and diligent with his finances, Andrew was still finding his way and was less discerning in his financial decisions.

The original trustee arrangement could have placed an unnecessary burden on Brian, who would have had to turn down Andrew’s requests for distributions to indulge his hobby of purchasing motorcycles.

A corporate trustee works better for them

To avoid this potential source of future conflicts, I suggested that Tom and Sue change their original plans and appoint a corporate trustee to handle Brian and Andrew’s distribution requests.

By having this discussion, Tom and Sue made a decision that avoided the risk of resentment and fraternal friction down the road.

In such cases, your children might not agree with your decision, but at least they won’t feel that they’ve been blindsided.

It’s also important for them to know where you keep important financial records, such as trust documents, deeds, titles, insurance policies and financial statements for various bank and investment accounts.

You’ll also want to compile a list of online usernames and passwords so your executor can access and service these accounts.

Finally, you might want to let them know exactly how and when you plan to distribute your wealth.

If you don’t want to give an actual number, you might specify what percentage they’ll receive as heirs, and what percentage will be given to your grandchildren, other family members and friends or donated to charity.

Hopefully, having these discussions will strengthen family unity or at least make your financial intentions crystal clear.

However, if you’ve got an inkling that one or more family members could challenge your assumptions and plans in ways you’re not readily able to defend, you might want to invite a trusted outside professional, such as your financial adviser, accountant or estate planning attorney, to attend key sessions.

They can help answer questions or serve as mediators should conflicts occur.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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