Communication Is Key to the Successful Transfer of Wealth

Certain challenges and issues arise frequently while working with affluent families. One such issue is the lack of communication about estate planning and ensuing surprise on the part of the children that becomes clear when a patriarch or matriarch of the family passes and it is time to settle the estate. During this already trying time, children of the deceased quite often are blindsided at how their inheritance is handled and often don’t understand the thought process behind distributions.

In our experience, surprises can often be avoided by having a family meeting to explain the main goals of the estate distributions well before the grantor passes. The purpose of the family meeting is to ensure a harmonious transfer of wealth to the next generation.  Parents quite often do not want their children to know the amount of wealth they will inherit, perhaps to prevent the children from developing a sense of entitlement or a decrease in motivation.  Parents generally want their children to be productive members of society, developing their own goals, and diligently working to achieve them.

However, families could consider approaching estate planning carefully, perhaps with actual values omitted if preferred, so as not to have a negative impact on the children’s behavior. There is a tremendous benefit to explaining the reason for the way the estate is distributed and allowing children to ask questions while the parents can still answer them.  There is no need to disclose the amount of wealth, only the plan of distribution and logic behind it. Many of our clients have found that preventing potential conflicts and maintaining family harmony when a loved one has passed is well worth the preemptive work, allowing the family to grieve and move forward in a productive way when the time comes.

Most of the time, children receive their inheritance through a trust instead of outright.  Sometimes, if children are not educated about the advantages of trusts, this can lead them to believe that the parents did not trust them with the assets outright.  In most cases, this is not the reason for utilizing a trust. Having the assets pass into the trust helps provide protection for the wealth from creditors, ex-spouses or other unintended recipients, which is quite valuable given the high percentage of marriages that end in divorce, and myriad other potential litigations that may arise.  Discussing the reasons for creating a trust in a family meeting can help eliminate the possibility of a child feeling inadequate.  Additionally, this discussion is an opportunity to explain why certain people were named as trustees and the roles and responsibilities of a trustee when a parent is gone.

In some cases, children develop negative feelings towards trustees. This can lead to expensive litigation that can diminish assets in the trust, which is upsetting for those involved and is certainly not the will of the grantor. Preventing such instances is another reason to consider earlier discussions and education. Additionally, during this meeting, the parent or parents can explain the future distributions, the purpose of them, and the frequency. A family might choose not to provide specific amounts in these explanations, but it would be helpful for children to understand how arrangements will work and have the opportunity to voice any concerns. It could also be beneficial for children to know that they may have the funds to pursue additional education or can choose a job they are passionate about instead of one that simply pays more.

For blended families especially, discussing estate plans at a family meeting is extremely valuable.  When children from previous marriages, new spouses, or stepchildren are part of the equation, there may be conflicting interests which can lead to disagreements or resentment. Having a family meeting to go over the plan can create a positive environment and provide a better chance for successful estate administration.

Depending upon the specifics of the family dynamics and the relationship between the parents and their children, it can be beneficial to have a trusted advisor present at the meeting. With appropriate planning, this professional can help tee up topics that can be difficult to approach, and may be able to answer legal and financial questions that can be complex, leading to a smoother conversation. In addition, the meeting can provide an opportunity for the children to meet the parents’ advisors whom they will work with after parents’ passing.

There are many benefits of organizing a family meeting to go over an estate plan. Communication is the key to the successful transfer of wealth. If you have any questions or would like to discuss this or other matters in greater detail, please contact your Anchin Relationship Partner or Mela Garber, Tax Leader of Anchin Private Client, at [email protected].