Talking about money with family members is not easy. In this short post, I will try and lay out a few pointers that make a difficult situation a little easier and at least get the conversation started. It is best to start at a high level and developing a layered strategy. My hope is that these excerpts from industry experts can serve as a framework for successful wealth transfer for you.
Most high net worth families not only want to save enough for retirement and pass on some of their earned wealth to their families but they also wish to pass on their values and skills to the next generation. Per Dr. Dennis Jaffe and Dr. James Grubman’s research, there is a foundational reason that underpins the older generation’s wish to not only transfer their money but their values as well. They point out that the key is that the clear majority of the affluent in our society are “new money” and not “old money,” meaning approximately 80% of this country’s affluent came into wealth during their lifetime. They earned it and want the next generation to inherit the values of hard work that got them there. Grubman and Jaffe call these 1st generation earners “immigrants to wealth” unlike many of their children who are “natives” to the land of wealth because they grew up accustomed to having wealth. Simply understanding this dynamic can help facilitate the conversation.
If you are the immigrant to wealth, it is understandable that you would like to pass on your values with your wealth but that isn’t always easy, especially having the conversation. A 2005 legacies study from Allianz life insurance company found that 71% of American elders and 68% of baby-boomer adult children said they felt confident about discussing elements of inheritance with their children but only about 30% ever had. Each generation has a different perspective on money and wealth. The sooner you realize this, the easier the conversation may be. Immigrants to wealth should be admired for their work ethic, entrepreneurship and fortitude that made them as successful as they are. Natives to wealth are often different in their attitude towards wealth than the first generation. According to Grubman and Jaffe, the next generation may feel that their wealth is undeserved and are concerned that they can lose it and would not know how to rebuild it. I personally think dynamic is very important to understand if you want to successfully have the family wealth transfer conversation.
It is my recommendation to start with having a conversation about simple things that come up in casual conversation and convey your values during your discussion. Grubman and Jaffe recommend meeting with your children first in a comfortable place and later with their spouses. Start small and understand that you won’t cover everything. Values and objectives are easier to discuss than the actual aspects of your estate that unfortunately deal with your mortality. Start with the big picture first and making sure that the next generation understands that you want their generation and many more to come to be successful. Make it a win-win and you will likely find the conversation going more smoothly and in the right direction.