Discussing finances with family members may not be anyone’s favorite conversation, but it’s a topic that can’t be ignored. Delaying or simply not having conversations about the transfer of wealth might leave families unprepared and in a dramatically weaker financial position.
While the topic of money can be uncomfortable and tense for many reasons, family members should recognize the necessity of discussing wealth with loved ones to ensure not only that their wishes are carried out, but also that families are prepared for the future. Fortunately, there are financial professionals available to help facilitate these discussions and recommend the best plan.
It doesn’t help that discussions about wealth are often considered inappropriate, especially among older generations. While working with clients who are children of Depression-era parents, I have experienced numerous situations where families haven’t had a single conversation about their wealth and assets. Wealth is often a secret that is not discussed.
For example, one of my clients had no idea what her husband had left to her, and therefore was completely in the dark about her financial future after his death. This made a sad situation much worse due to confusion and financial uncertainty.
I find these situations don’t usually arise out of distrust, an inability to communicate, dysfunctional family dynamics, or otherwise. Instead, it’s due to the fact that the individual in charge of the household’s finances simply didn’t talk about money with their family as it was “not appropriate.”
Digging deeper, I’ve learned that this is a common cultural dynamic for American families that emerged from the Great Depression. It was inappropriate to talk about your wealth with neighbors, family, or friends who may have lost everything. As such, you didn’t talk about it to anyone, including family. Many of these attitudes have transferred to the next generation.
Children of the Great Depression generation, now in the later part of life when financial planning is paramount, often choose not to talk about it, and their children often don’t feel comfortable asking.
This is just one reason among many that people choose to avoid discussing their finances with family members, even when it has a direct impact. Control, propriety, or concerns about the next generation’s stewardship are common causes of “wealth secrecy.” Unfortunately, keeping this information from spouses and dependents leads to angst in not only the wealth owner, but also in the families that are disrupted and put in difficult situations to manage wealth.
The first step is starting the dialogue, but given the tense nature of some of these conversations, there is an important role that a financial professional can play. The right advisery team can help families to have a productive and candid discussion about wealth.
A financial professional, with the support of legal counsel or a tax or bank trust officer, depending on the circumstances, can offer a positive framework that can guide conversations with efficiency and delivery.
They are skilled at asking the necessary questions and acting as a mediator for tough and emotional topics. Having a professional assist with early conversations can help the wealth owner to express their wishes while also supporting the family discussion objectively.
In many cases, clients have problems because they focus on specific dollar amounts or material items. I’ve found it’s more effective to begin with a conversation on how the value of the accumulated assets can create positive outcomes to support the family. Identifying and agreeing upon what is important creates a strong basis for resolution and a successful transition plan.
For example, I worked closely with a couple who were uncomfortable with a significant transfer of wealth. Past gifts to family members had gone awry, and they didn’t know how to move forward. The couple only arrived at a breakthrough when they identified education as their priority, agreeing that the central goal of their gift would be to provide education to future generations of their family.
They began working with legal counsel to make sure that everyone understood the gift through the development of an “understanding document.” It served to explain the motivation behind the gift, what family members needed to do to meet expectations, and how education was expected to complement the family in its philanthropic efforts.
Sharing this document with each family member removed any confusion from the wealth transfer process and established a clear plan to help the next generations.
Unfortunately, not every situation can be solved with a candid discussion. Certain dynamics can be extremely personal or difficult given conflicting attitudes and values within a family. It’s crucial to find a resolution, and there are professionals who can help facilitate a productive discussion.
In some cases, it may be best to find a family therapist who has background in physiological and emotional issues who also can discuss and integrate conversations specifically to include wealth transfer and estate planning. A family therapist can act as an additional consultant, mediator, or counselor to identify and clarify family wealth issues and complement the current adviser’s efforts with a higher sensitivity to family conflict issues and resolution.
The silent generation and baby boomers can’t be the only ones responsible for having candid conversations about wealth. Generation Xers and millennials need to be prepared and to develop transparency with their aging loved ones in regard to finances.
In order for wealth to be transferred wisely, it’s crucial for there to be a level of comfort and understanding on both sides of the conversation. Without that, it’s difficult to plan for the best way forward. While the subject can be a difficult and emotional one, there’s no substitute for being prepared and having a plan of action to assure your family’s continued well-being.
Diana Henke is a senior vice president and senior relationship manager for Washington Trust Bank’s Wealth Management & Advisory Services. Henke consults with clients throughout the Northwest on investment alternatives, fiduciary and estate planning strategies and services, and the sale of businesses and repositioning of wealth.
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