Nearly four in five wealthy families have had unplanned discussions about wealth, with 26% later regretting it, according to a study by the Merrill Center for Family Wealth, a part of Merrill Private Wealth Management.
The research found that 33% of families increased family conversations about wealth since the pandemic; however, many families dive in without a plan, process, or skills to make well-intended conversations productive. This can lead to unintended stress, potential family rifts and under-functioning heirs.
To better understand how families approach discussions about wealth and decisions around gifting money, distributing assets among heirs, managing shared assets, and preparing the rising generation to handle wealth, Merrill surveyed 270+ individuals from families with $50 million or more in assets. The report, Pulling back the curtain: Wealthy families open up about money, relationships and decision-making, offers insights from a rarely-studied demographic and provides valuable lessons and action steps for all families who are navigating the complexities of intergenerational wealth.
Among the survey’s findings:
78% of families who recently had conversations about family wealth said the discussion came up spontaneously.
26% of those who have had these conversations said they regretted it after the fact.
48% said that financial decision-making is shared among two or more generations.
54% reported that one of their biggest challenges when co-managing shared assets is limited governance, such as a lack of transparency or clarity about roles, responsibilities, and how decisions are made, by whom.
Just 14% said that the technical complexity of co-managing shared assets is a top challenge, while the remaining 86% pointed to non-technical challenges like complex family dynamics and limited governance.
“Our research pulls back the curtains on the intricacies of family wealth, a topic that still remains taboo in many circles,” said Valerie Galinskaya, head of the Merrill Center for Family Wealth, and principal author of a report on the study’s findings. “When families learn to navigate wealth together, starting with an intentional plan and thoughtful conversations, they can do great things and thrive.”
Why unplanned conversations are unproductive
There are many reasons why wealthy families should not dive into family conversations about wealth without having a plan or a process. As noted by MDRT member Juli McNeely, “conversations around wealth and the transfer of wealth can create more questions than you may be prepared to answer.” McNeely, who is a financial representative with Financial Clarity by Design, believes that it is wise for the parents to have a sound plan and a process that includes a financial advisor (and other professionals) being part of the discussion for two main reasons:
1) To communicate to and educate the remainder of the family about the rationale and strategies utilized.
2) To be the expert in the room to answer any questions that arise.
Another MDRT member, Stephen Kagawa, also does not believe in spontaneous conversations when it comes to discussing intergenerational wealth. From one heir believing theirs is to be the family business, another the family home, and yet another a piece of both and everything else for that matter, emotions can run high, he said.
Parents might go to the extreme of believing that they’ve already shared their true wealth in their children’s upbringing and schooling, along with the generations of wisdom they’ve passed to them. A family’s wealth can be defined in so many ways and spontaneous conversations can, and often will lead to unintended consequences, added Kagawa, CEO of The Pacific Bridge Companies.
Depending upon family dynamics, telling children of a parents-only-derived, pre-conceived plan may not be ideal. “A purposeful process of discovery to hear of children’s hopes and to share parents’ thoughtful considerations before sharing the parents’ intentions or finalized plans ahead of time can serve to minimize unwanted pushback and emotional outbursts,” Kagawa said.
Sharing similar sentiments is MDRT member, Elke Rubach, president of Rubach Wealth. Rubach said that the risk of diving in before having a framework that levels the playing field and rules of engagement (do’s and don’ts) is that emotions are likely going to run high, and although everybody might go in with the best of intentions, without “rules of the game,” the likelihood of discussions going sideways is so much greater.
Steps to meaningful conversations
So, what steps can advisors take to make these conversations more productive for all involved? “First, recognize if you have what it takes to facilitate such conversations,” Rubach said. “A multidisciplinary approach is key. Surround yourself with the professionals needed and make sure you have the education and tools that are required for taking the client family down the path of intergenerational planning.”
A healthy first step in wealth-transfer planning is to understand and appreciate a wealthy person’s or a couple’s assets and the hopes and intents for how and to whom they might disburse them upon their passing, added Kagawa. “This step is as much for your client as it is for you in shaping your advice. Parents rarely explore such questions of themselves, and even if they have, fewer still have discussed their thoughts with their spouse or partner,” he said.
Next, Kagawa asks his clients how they wish to let their children know of their intentions. Some prefer not to share their plans with their children and simply execute the plan. Others want to let their children know; yet, they have no intention of allowing them to participate in their ultimate decision-making. “For those who want their children involved in the conversation, we encourage and offer to conduct discoveries to help them listen and understand their children’s thoughts and hopes without judgement all before finalizing plans. Even under that scenario, we strongly advise parents to maintain control over final plan outcomes, its elements, and execution,” he said.
Advisors can play a significant role in wealth-transfer conversations by preparing the agenda and facilitating the conversations, added McNeely. As wealth transfers from one generation to the next, the burden of proper planning passes as well. “I like to think these family conversations are a teaching moment, so that ongoing planning decisions can be made with the knowledge necessary to perpetuate family wealth.”
Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at amseka@INNfeedback.com.
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