To Investment Advisors: How to Help Clients and Their Families Have “The Talk” about Estate and Financial Planning
The following is a compilation of the advice of many financial professionals, psychologists and advisors, paired with my experience helping hundreds of families navigate the disputes surrounding estates in preparation for and after death.[i]
Before “The Talk,” parents can avoid family discord among their survivors if they are clear, specific and consistent about their wishes. It is best to put those wishes in writing and to communicate them with all beneficiaries. If the parent changes his or her mind about the plan, spell out the reasons for the change in writing while there is no plausible challenge based on clouded judgment.[ii]
Many suggest a family meeting for the parent to express their wishes as a venue for “The Talk.” Pick the forum for the conversation that is tailored to your participants; some families may prefer several smaller meetings, followed by a meeting with the trusted advisor. I confess that just calling a family meeting in many of the families I’ve worked with would have resulted in chaos. Separate preparatory conversations are needed to make such family gatherings successful.
A trusted person like an investment advisor or estate planner may convene a gathering in which the investments and the plan are explained by the neutral advisor. If competitive views are involved, the parties can enter into an agreement, binding upon the parent’s death. This agreement likely avoids the risk of litigation, reducing the estate, sometimes substantially. A facilitator/mediator familiar with such matters can help steer the conversation and positively manage the disputes.
How do the adult children start these conversations if the parents do not? First, approach the topic in shorter, casual conversations. Look in the mirror and confirm that you’ve assumed the role of an aide to your parent and not a meddler seeking an undue influence. Gently let them know that you are there for them in a supportive role and want to carry out their wishes for their care and independence in the way that they want. Involve other family members in this process and maximize transparency to avoid jealousies and misperceptions.[iii]
The actual conversations should be approached with sensitivity, naturally. Most adult children don’t want to raise the topic for fear of appearing greedy, intruding on the parent’s privacy, decision-making and control over their own lives. The role reversal is difficult for everyone to adjust to in this conversation. Statements such as:
“We want to understand your wishes in your estate plan so that we know what is important to you. We want to support you and carry out your intentions. We don’t want to be guessing or disagreeing about what you want. We’re sure that you don’t want us to argue with each other because we didn’t understand how you wanted it to be carried out.”[iv]
To start this conversation, try to assume a mindset of sincere curiosity about your parent’s plans and intentions. This approach is difficult to do ‘personal agenda-free,’ meaning without a pre-disposition to believe that the plan should be one thing or another. If you can’t be genuinely curious, then consider involving an intermediary like your parent’s financial advisor, estate planner or a mediator who has this experience.
Once curious, ask open-ended questions about your parent’s intentions and plans, and repeat back the answers you hear. This should be affirming. Asking directive questions and “why” will be unhelpful. Encouraging remarks like,
“We want to focus on what you want so that we can carry out those wishes,” will likely be received as supportive if the adult child is being authentic.
Validating the parent’s choices is important.
“We want to tell you that we’re not asking so that we can take over and control everything. We want to know how we can help.”
By now the parent is likely thinking, do I have to communicate these matters with my children? Isn’t it enough that I raised them, supported them and am leaving them an estate to inherit? The truth of the matter is that well crafted estate plans can fail without an accompanying communication to heirs. Some methods to reduce family strife include:
-In estate matters, equal is considered to be fair for those similarly situated. Equality means equality in assets and in responsibilities.
Consider gifting assets in equal amounts and designating each of your children with responsibilities. When parents appoint one sibling to be the Executor or Trustee they are making a final statement of who is trustworthy and most capable. This can hurt feelings of the others and the decision is irrevocable. Consider assigning other roles: health care power of attorney, writing the obituary, informing friends, giving the eulogy, and making funeral arrangements.
When the beneficiaries of an estate are not similarly situated, communication is more important. For example, there is no societal consensus on fair treatment of blended families. The parent’s plans should be explained to avoid unhappiness and jealousies.
-if the distributions are unequal, explain your reasons.
The note you leave reinforces all your other consistent communications. For example, “[A]s you know I love you all equally but I am leaving the pearl earrings to Susie because she is the only one I didn’t buy pearls for at age 25 and I am giving more money to Johnny due to his expensive medical treatments.”
-don’t leave the discretion to distribute your assets to anyone. Do it yourself.
This discretion is no gift to the survivor who has to guess at your preferences between siblings. Leave a list or ask your estate planner for typical fair practices for sharing personal property in an estate. I have mediated many serious disputes arising from the exercise of Powers of Appointment, a legal power given by the decedent to one party to make decisions for them after death.
Following these concepts should help avoid most disputes for the orderly transfer of wealth as planned.
[i] Ted Rechtshaffen, TriDelta Financial, October 25, 2017, http://business.financialpost.com/personal-finance/we-have-750-billion-reasons-to-have-the-talk-about-inheritance-with-our-children;See, Fidelity, Family and Finance Study, 2016, rights reserved. Carol J. Clouse, Contributor, Reuters Solutions, First Republic Bank, July 11, 2017, https://www.firstrepublic.com/articles-insights/life-money/plan-your-legacy/passing-along-an-inheritance-five-tips-for-preparing-your-heirs; Austin O’Connor, AARP, Inheritance Etiquette: Talking Things Out, https://www.aarp.org/home-family/friends-family/info-07-2013/will-estate-planning-family-inheritance.html (“AARP, Talking Things Out”); Andrea Coombes, Market Watch, 2016, https://www.marketwatch.com/story/how-to-have-the-money-talk-with-your-parents-without-seeming-greedy-2016-12-01 (“Market Watch, Talk Without Seeming Greedy”); Bank of America, Essential Information to Gather from Your Parents; https://www.merrilledge.com/article/tips-talking-with-your-aging-parents-about-their-finances-and-health; Bank of America, 4 tips for talking to your parents about their health & money, https://www.merrilledge.com/article/tips-talking-with-your-aging-parents-about-their-finances-and-health (“Bank of America, 4 tips”); AARP, How to Leave an Inheritance to Your Kids, https://www.aarp.org/money/budgeting-saving/info-04-2013/leave-an-inheritance-to-your-kids.html?intcmp=AE-ENDART1-REL (“AARP, How to Leave an Inheritance”).
[ii] If diagnosed or undiagnosed dementia occurs, consider working out an agreement avoiding estate administration disputes among heirs during the lifetime of the parent. See, How to Avoid Probate Litigation at: https://rakowskymediation.com/mediation-can-avoid-probate-litigation/.
[iii] Bank of America, 4 Tips, above.
[iv.] See, Brad Klontz, a psychologist, financial planner and founder of the Financial Psychology Institute, Market Watch, Talk Without Seeming Greedy.