By: Wendy Brekken and Ryan Nielsen
As you worked to accumulate your wealth, ideally you have also taken the necessary steps to document your intentions for your family and estate plan. Implementing the strategies necessary to create an effective estate and wealth transfer plan are important to your wishes being carried out. However, just as important is communicating those plans to the people closest to you as well as the reasons and values that informed your decisions.
Clear communication continues to be a critical component of successful wealth transfers. And, given the unprecedented level of wealth expected to transition in the coming decades—an estimated $84 trillion by 2045—it feels even more paramount to ensure that family members are engaged and well-prepared.
Communication gap: A recent survey conducted by Cerulli found that only 26% of transferors believe they have provided enough information for their beneficiaries to be “very well informed.” This gap in communication may put the up-and-coming generation at a disadvantage as they try to carry on the family legacy in the future.
This gap could be influenced by two prevalent themes observed among parents and grandparents who are planning to transfer wealth:
- Privacy is a deeply held virtue, and there is fear around potentially disclosing too much information to children and grandchildren.
- And, perhaps more common, there is concern that a child’s knowledge of what they stand to inherit may diminish their personal drive to succeed.
While conversations around wealth planning and finances may feel uncomfortable, the potential problems that can arise by avoiding them are typically more problematic.
By engaging the rising generation in these types of discussions, especially if done regularly over time, you can establish a pattern that becomes easier. The benefits of this type of ongoing dialogue can include stronger family bonds and shared values, a better understanding of the implemented wealth strategies, and a family legacy that sustains for generations to come.
The Risks of Neglecting Next-Generation Wealth Planning
When conversations about family values around investments, philanthropy or wealth are put off for too long, there can be a range of potential issues that arise.
Misunderstandings between generations – Unfortunately, many beneficiaries don’t learn about the wealth transferring to them—in terms of why, how and what—until after a family member passes away. Whether it is sudden and unexpected wealth, or it includes terms and restrictions that are different than anticipated, feelings of guilt, confusion and tension might be the unintended results among beneficiaries. It can also be a missed opportunity for the older generation to communicate the stories attached to how the wealth was created, the family values to be passed on, as well as the hope and goals for the future use of those funds. Unfortunately, we have been part of conversations with recipients when the inheritance is different than anticipated. Almost invariably, the beneficiaries wished to have had the opportunity to hear directly from their loved ones.
Lack of trust regarding financial decisions – By keeping the next generation in the dark about your family wealth plans, you may be inadvertently signaling a lack of confidence in the beneficiaries. In the absence of context, the creation of a trust to hold a beneficiary’s inheritance could be misinterpreted by the recipient as signaling a lack of confidence in their ability to handle the assets. There is a multitude of reasons a trust may be utilized, from legacy and generational wishes to tax efficiency and future protection from ill-intentioned third parties. None of which have anything to do with doubt in the individual.
Financial inefficiencies due to poor planning – Thanks in part to social trends, younger generations are seeking guidance from financial advisors earlier than many of their parents or grandparents realize. Establishing a connection with your advisory team helps ensure everyone is on the same page and that the institutional knowledge held by your long-term trusted advisors is accessible to your family. If information is not shared, your beneficiaries may make decisions that are inefficient or counterproductive to the legacy planning that you are undertaking.
Effective Ways to Engage the Next Generation in Wealth Planning
Everyone is free to do what they want with their wealth. Making an effort to give your children and grandchildren a behind-the-scenes look into why you’ve chosen certain strategies can help them better understand your values and priorities. It can also help them develop a more informed relationship with money and investments, which gives them more confidence and helps future-proof your family legacy.
Introduce age-appropriate topics early – In a perfect world, conversations about finances and money start at an early age. While a three-year-old might not be ready to chat about the stock market, they can and will start to pick up on the conscious and unconscious messages about money being communicated by family members. As kids grow older, engaging in conversations on budgeting, investing and planning for a secure future will provide a foundation of financial education, and allow your children to understand your values around money.
Initiate conversations beyond the numbers – Each generation and individual holds unique perspectives, and each family shares their own values. Keep communication lines open so you can better understand their motivations and dreams, and they can understand yours. Simple, open conversations around the dinner table or in the car can go a long way toward building trust and clarity.
Invite them to advisor meetings – Including your children or grandchildren in meetings regarding your investments, philanthropy or estate plan provides them with opportunities to ask questions, understand your approach, and foster trust and understanding. Your advisor can help you create a plan for gradually introducing your children into planning discussions, so you’re in control of what details you share and when. This also creates space for key family members to ask questions of you or your advisory team, as well as to build relationships with advisors who are knowledgeable about your family’s history.
How PW Can Help
Private Wealth’s advisors specialize in investment and wealth planning for successful multi-generational families. Our team-based approach surrounds our clients with advisors from various disciplines and stages of their careers so our relationship grows alongside your family. We strive to engage with all key family members on a personal level to understand the diversity of experience and perspectives within the family, building connection and trust in support of your desired legacy.