Most older people in some way or the other are working through their estate planning. What to leave to whom and how are the key questions that you may be trying to address. In this article here, a family wealth expert raises an important issue of how to manage passing on of an inheritance without leaving anybody unhappy in the process. Team RetyrSmart feels these will be useful inputs for many of our readers as they go about their estate planning
Passing on your wealth without causing unhappiness
“I give them a $20,000 gift and I don’t get a thank you?” Sound familiar? The dollar amount may vary, but the frustration is the same. More and more people are frustrated and confounded at the lack of appreciation they experience when passing along their wealth to their children and grandchildren.
They worked hard for their money because they wanted to give their kids and grandkids a better life. But these generous people are realizing that their wealth is causing them more grief than gain.
At The Williams Group, a firm that works with families struggling with wealth transfer and its impact on the inheriting generation, we are often asked, “How do we leave our wealth to our kids and not cause more grief?”
What Parents Care About Most
Participants were asked about the ways their money helps, or gets in the way of, their deepest aspirations for themselves and their children. The study revealed that participants with children worried less about making more money and impacting the world through philanthropy than “to be a good parent.”
If “to be a good parent” is paramount, then why kick the can of the money conversation down the road?
Most parents are reluctant to talk about money with their kids, and rightly so. It’s a daunting conversation, and invites the question: “How much inheritance can I expect?”
The High Failure Rate Among Affluent Families
But when parents leave their hopes and dreams to chance, the odds of a successful outcome do not bode well. Our 20-year study at The Williams Group revealed the reasons why there is a 70 percent failure rate among affluent families (meaning the assets dissipate and family relationships disintegrate):
• Mostly, it related to a family’s ability to have meaningful, productive and honest conversations about the impact of money and the purpose of the wealth.
• Some of it was due to the heirs’ relationship to wealth. For example, whether they had a direction in life, understood basic personal finance or knew their role in the estate plan once it transferred.
• The rest was attributed to the family not having a shared understanding of the purpose of the wealth. In other words: Did they see themselves as stewards or socialites? Did family values lead decisions related to the wealth? Was there alignment regarding how distributions were to be handled?
Wealth as a Weapon
Well-meaning parents often answer their children’s question of “how much and when?” by establishing a structure that does the protecting for them.
Their wealth is locked up in trusts or distributed to their kids at “age-appropriate milestones” or they employ a clause in the will that states “if there is any fighting, it all goes to charity.”
Mom and Dad will also try to protect the family values by threatening to disinherit those that don’t tow the family line — such as not having the same political affiliation or religious beliefs.
In our interpretation, this is a fairly short-sighted solution, although common. This takes care of Mom and Dad’s concerns, however the only unity among generations charged with executing that strategy will be pooling their resources to change the will.
Mixed Messages About Inheritances
Another strategy parents often employ is to leave the kids guessing. Here, Mom and Dad believe that if the kids don’t know there is significant wealth, they will remain motivated and work as if they are not going to get anything. The younger generation, however, is fairly savvy at extracting information through the Internet. So when we interview this generation, they almost always have figured out their parents’ net worth within a pretty close margin.
The pressure of the children not knowing what they will inherit starts to show up in awkward questions — wondering if they can ask for financial support or if they will be cut off. Some of our clients’ offspring refer to this as the “walk of shame,” meaning they live beyond their means in the homes their parents have purchased for them, enroll their kids in the private school their parents pay for, participate in the country club their parents insist on, and have to ask for supplemental income on a monthly basis.
Having ‘The Conversation’ Without Talking About Money
If your family is at odds with each other over inheritances, take a moment and step back and ask a different question. Reset the context of the issue and strive for alignment on the purpose and intended outcome of the conversation..