Family Wealth Management: General Wealth Conversations

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Summarized transcript of video

Today, we are going to be talking about family wealth transfer. When I say family wealth transfer, we're not just talking about getting financial assets to the next generation, it's really more about how to pass on, what we think is important, and how to do that, and avoid damaging our children's relationships with each other. I think most people would agree that if you can leave all of your money to your heirs and they don't have to pay a nickel in taxes, but something happened during the transfer, and they won't even sit the same room as each other. That's a failure! It's not just necessarily about how do you maximize how much you're giving to the next generation. It's about how is that done in the smoothest possible way for the family to move forward after something happens to you. So that's what we're going to go through today.

Generational Wealth Conversations

The three things that can really help with your wealth transfer are understanding why transfers fail, being familiar with what planning steps that you can take to avoid these common mistakes and lastly, knowing how you can communicate your plan and your wishes with your family to reduce the likelihood that they're going to make mistakes when that time comes.

The Great Wealth Transfer

So, when we talk about wealth transfer, there's this thing in the industry called the Great wealth Transfer that's going to be happening over the next 25 years. In fact, 68 trillion dollars is going to be passed down to the younger generation into charities over the next 25 years. One of the biggest concerns that parents have, or handing this money down to their children, is that their children they don't believe are ready to manage those finances or handle that burden of an inheritance. In fact, one of the biggest concerns is that in 2018, only 24% of young adults were financially independent by the age of 22. That number was at 32% in 1980. Many people joke about Boomerang children, you know kids going off to school and then coming back home and living on for a period of time until their mid to late twenties, if not their thirties. So, there is a concern that a lot of parents have, or you know, a lot of our clients have expressed this as well, that what do we do if we don't believe our kids are able to handle a lump sum of money that they get in an inheritance?

Why Transfers Fail

So, why do transfers fail? Let's look at the big picture first and really look at why they fail and how often they do. Starting off with the parents. Parents often don't have a plan; they don't take the time to fully consider who they want or need to provide for. A lot of parents think it might be as simple as, I'm just going to hand this down to my children, but what does that actually mean? It is important to take the time to figure out and consider how they want their money being spent by their loved ones. Not having a plan is, is one of the biggest ways that we see transfers fail, but another reason they fail is because parents are not communicating their plan with their family.

How do you actually communicate this to your children before something happens to you? Another big reason transfers fail is because of the people who are inheriting the assets. One of the biggest issues is that they fight each other, whether it's personal histories or past issues that they've had, different lifestyles, all that can really bubble up and explode when parents pass away and their estates are passed on. We see it quite a bit where siblings or heirs have a big issue with who gets what, how they get it etc. Even when the plan is documented and its been updated over the past couple years legally, for some reason, sometimes there is still the necessity to fight the wealth transfer plan. This happens often because they didn’t know what was coming and were caught off guard.

One thing to consider is that that adult would actually, rather talk about many more things with their children, as opposed to money. Most parents would rather talk about many things with their children, including their wishes upon death and personal health before they talk about money. It's not a comfortable conversation for most, and part of it is breaking down that barrier so that it does become more comfortable. A lot of parents don’t want their kids to know how much they have or what they have, however at some point, it's taking control of that conversation.

Some parents do not have confidence that their children are at the stage where their kids could manage their inheritance on their own. There is a perception that family wealth discussions are about trusts, investments, tax strategies or insurance policies. Instead, it's really about figuring out what are those financial goals and how do you actually articulate what your wishes are, what your goals are, and really, what your values are to your child. Educating your children on the basic concepts of wealth is very important.

One of the most classic examples of an estate transfer fail, is, looking at a family who, has a vacation home. Where they had a vacation home since they were children and spent every single summer, or single winter there. Even as an adult, they even had their own children go to this vacation home. Many of us have memories of a place like that from our childhood. At some point, this vacation home can become a part of who you were as a child and who you are as an adult because of the emotional connection.

What happens if something were to happen to you? Who gets that property? Who gets the paintings in the house, who gets the table or the cowshed having the conversation of what assets really mean something to your children? Is there anything that your children really want because of an emotional connection? Maybe it is that vacation home or maybe it’s the couch or the grandfather clock or whatever it may be that has some sentimental value. Now is the time to start having that conversation with your family. In fact, if you really want it to get detailed, if it came down to assets and dollar values you can have things appraised. Most people know that they can get their home appraised but might not realize that they can get their personal property appraised as well. So, if you have coins, a gun collections or unique art, pieces of silver, or collectables, and have no idea what they are actually worth, getting an appraisal can help. As you're building out your estate plan, and you've got a child who has an affinity for a specific piece of personal property, that can become of their inheritance  and there can be a dollar value tied to that as opposed just something that doesn't have a value, other than emotional. This way, the estate can be split fairly because everything has a dollar value to it.

Avoiding Mistakes

if you haven't done so, it can be an important exercise to create what's called a family financial map. Who is your family? Who will you want to or need to provide for? Next, what you'll want to do is really use that Family Map to start planning for the conversation with your estate attorney, your tax advisor, and financial advisor. It is important to routinely update and review, not just your family map, but really your plan for your assets. One thing that is often forgot about is that if something were to happen to you, and you've got children, no matter what, it's going to be an emotional time for them. So, by putting together a streamlined wealth transfer plan, and making sure that you've got all the documents put together and, making sure that you've got all of the assets titled the right way and the beneficiaries updated will help make the process a lot easier.

Communicating With Your Family

Lastly, the last thing we want to talk about is how to engage and educate your family members of all ages today. If there is any time that, you open an account for them, you want them to know about it. Include them in meetings with your advisors, whether it's tax advisor, estate attorneys, or financial advisors. Talk about what you're doing and why you're doing it, especially if you don't feel confident in their ability to manage assets on their own. One thing that is often overlooked is making sure your children know how to contact your advisory team. Wealth transfer mistakes can really often cause a lot of tax issues, whether that's IRA distributions, or even selling things at the wrong time.

Getting Started

A couple different ways to get started. You can set up family meetings or at least have a brief conversation about wealth. Talk to your advisor or your advisory team if you don't know how to broach the subject. It could be as simple as just an introduction, or you can have your advisor  work with your child on something very basic. Just to have a conversation as an introduction and see where that leads. It is important to try and make a routine around meetings or conversations, whether it's every year, every two years, and then utilize life events as an opportunity for these conversations. Whether that's, a marriage, a new home, a new grandchild, whatever, that may be. Anything that is significant life event would be a good opportunity to have a brief discussion.

We Can Help

If you have questions about how to start the conversation with your family or if you want to make sure your financial plan is in-line with your long-term goals, use the link below to schedule time for us to connect.

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Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC.– Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. –  Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. – Theorem Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. Third party posts do not reflect the views of Theorem Wealth Management or Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and have not been reviewed for completeness and accuracy. All further communications from this representative must be sent from and received by johnathan@theoremwm.com. For additional information, please refer to one of the following consumer websites: www.FINRA.org, www.SIPC.org.

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