Strategizing Family Wealth Transfer: A Financial Advisor's Insight on Family Affluence Dialogues
In a world where money conversations are often shrouded in taboo, discussing wealth and legacy planning can be a challenging task for many parents. However, it is an essential conversation that can help prepare children to manage money wisely and honor the family legacy without unnecessary burdens.
Parents often hesitate to discuss wealth due to cultural discomfort, fear of raising spoiled children, concerns about transferring burdens or expectations, embarrassment about financial difficulties, and reluctance to reveal their net worth. Yet, four out of five parents believe it's important to have these conversations, according to a study by Fidelity Investments.
To initiate these conversations effectively, experts recommend normalizing money talks early and regularly, framing discussions around family values and the history of the wealth, using goals-based criteria to teach responsibility, being honest but sensitive about financial realities, and talking about estate and inheritance plans well in advance.
By discussing wealth and legacy planning, parents can help their children understand the value of money, avoid unnecessary burdens, and prepare them for eventual wealth management or succession. This can be done by connecting wealth to meaningful purposes, linking inheritance to productivity or social contribution, and being honest about financial realities, including struggles and plans.
Moreover, discussing wealth can also ease worries about major expenses like purchasing a first home or wedding. It can help children appreciate the true costs of their education by discussing the costs of colleges they're applying to, how much will be paid for, and how much they might need to pay out of their savings and 529 college savings plans, or through student loans.
In some cases, a corporate trustee can help avoid potential conflicts and burdens in distributing wealth among children with different financial habits. Establishing a family giving vehicle like a donor-advised fund can authorise children to recommend grants to charities that reflect shared values.
Discussing business succession plans with family members can help in transitioning ownership, while sharing common causes with family members can lead to collaborating on a family mission statement. It's also important to let family know about critical end-of-life roles such as power of attorney, health care proxy, and executor or successor trustee.
In the event of disagreements, inviting a trusted outside professional, such as a financial adviser, accountant, or estate planning attorney, to key sessions can help answer questions and serve as mediators in case of conflicts. Their records can be checked through the SEC or FINRA.
One real-life example of the importance of these conversations is the rift between two sisters, Jane and Diane, that occurred after their mother, Sandra, died. Sandra had given a silver necklace to Jane, who then gave it to her own daughter, but Diane had enormous sentimental value for the necklace, which Sandra wore at family events.
By discussing wealth and legacy planning, parents can prevent surprises that often lead to family disunity. Approaching retirement, decisions about selling a business, moving, and downsizing possessions should be discussed with family. Discussing end-of-life decisions, including interment arrangements, estate plans, and wealth transfer, can ease burdens on family.
The Kiplinger Building Wealth program features financial advisers and business owners who share retirement, estate planning, and tax strategies. Their free, twice-weekly newsletter, Building Wealth, provides expert tips to grow and preserve wealth. By overcoming discomfort with openness and connecting wealth to values and responsibility, parents can better prepare their children to manage money wisely and honor the family legacy without unnecessary burdens.
In conclusion, discussing wealth and legacy planning may be uncomfortable for many people, but it is a crucial conversation that can help prepare children for a financially secure future and maintain family harmony. By approaching the topic with honesty, sensitivity, and a focus on family values, parents can ensure that their wealth is passed on in a way that honours their legacy and supports their children's financial success.
- To maintain family harmony and prepare children for financial success, parents should initiate conversations about wealth and legacy planning, focusing on the connection between wealth and family values.
- By discussing financial realities, including costs of major expenses and estate plans, parents can help their children understand the value of money, thereby ensuring a financially secure future.
- Engaging in wealth management discussions can also help avoid potential conflicts when distributing wealth among children with different financial habits, and can ease burdens on family during end-of-life decisions.
