By Marguerite Weese in collaboration with Diane Peterson McNeal
Wilmington Trust
Uncomfortable conversations about wealth occur within families on a regular basis. What do you say when your children or grandchildren ask the simple question: Are we rich?
If you struggle with how to communicate about your wealth with your own family, you’re not alone. In fact, a large percentage of the senior generation does not share information about wealth transfer with their inheritors.
Less than half of wealth holders say they have provided full details of their wealth transfer plans to younger generations, according to a survey Wilmington Trust conducted in partnership with the Institute for Private Investors and Campden Research. Fifty-seven respondents were drawn from Wilmington Trust clients who agreed to participate, as well as Campden Research’s existing community of members in North America. Thirty were wealth holders who have either created their family wealth or have already received more than half of their expected inheritance, while 27 were inheritors who have not yet received 50% of their expected inheritance.
The survey showed that only 29% of the senior generation has given their inheritors complete knowledge of when assets will be transferred, and just 10% have provided full specifics on how much heirs will receive.
What is the most common reason for not sharing inheritance details? It’s concern that the anticipation of inherited wealth will demotivate or disempower family members. Of the survey respondents, 30% cited this as a reason for withholding information.
Are the concerns of the senior generation justified?
Perhaps. The survey found that 55% of inheritors will leave their current job after receiving their full inheritance, and 37% have no plans to continue working in their current position. This data may suggest that many inheritors truly do plan to jump off the “fast track” when they receive their inheritance. Or, they could be seeking different, more fulfilling jobs or pursuing their passions because they are financially able to do so.
It’s important to acknowledge that some inheritors are demotivated by the perception of an anticipated inheritance, before they even begin to learn about specific wealth transfer plans. They are aware of their family’s wealth by evidence of the family’s lifestyle, and they go through life assuming they will eventually receive a large legacy.
Despite wealth holders’ fears of disempowering heirs, not communicating can be the worst path to follow. While every family is unique, there are some best practices among families who have decided that preparing heirs is important.
- Develop a plan for how the family communicates and shares knowledge
Families use various methods to communicate their hopes and plans surrounding money, and some work better than others. What doesn’t work is lifelong lecturing forced upon younger family members.
Rather than parents having “one-off” conversations with children separately, many families are benefiting from having organized, prioritized group discussions around these topics. Often these discussions can begin as educational sessions. Gathering everyone in the same room, perhaps at a family retreat with a trained third-party expert, can strengthen the bonds among members as they share the learning experience.
- Use philanthropy as a way to transmit values and work together across generations
Shared values and culture create much stronger bonds than money alone, so it’s critical that families use shared experiences, such as philanthropy, to strengthen them. Creating a culture of giving within a family can form a lasting philanthropic legacy that can extend through multiple generations. The senior generation should encourage children to think about their own causes and leverage lifecycle events, like birthdays and year-end giving, to motivate the family. Families may want to volunteer together, and consider using planned gifts, like a scholarship fund, to promote a family’s heritage. More complex philanthropic structures, like private foundations and donor advised funds, may be appropriate for some families as well.
- Talk about the risks associated with inheritance
It’s important the family collaborates to identify and mitigate risks to their legacy. They can determine a proper risk management approach, based on the family’s priorities: growing wealth, preserving wealth, engaging in philanthropy, or a combination of factors.
They can also examine the risks of increasing their spending in anticipation of an inheritance and after receiving one. They should consider the sustainability of spending in different economic environments, as well as the desire to leave assets for future generations.
Risks can also emerge if inheritors don’t feel they are being treated fairly. Families need to be on guard for any potential disconnects between anticipated inheritance and reality, as well as possible discord among multiple inheritors receiving unequal shares. It’s critical to get a head start in managing the risk of potential acrimony among inheritors early, rather than waiting until after the current generation is gone.
For many families, discussing wealth transfer and inheritance issues can be challenging. But the rewards can prove significant when you work together to improve communications and strengthen trust.
Marguerite Weese is national director of fiduciary planning at Wilmington Trust, N.A. developing customized wealth management strategies and financial plans for prominent individuals, families, and business owners. She also oversees the organization’s intergenerational family trust and estate educational offering.
If you would like to learn more about Wilmington Trust, please contact Diane McNeal, regional managing director of Private Banking, at 561.630.2103, or dmcneal@wilmingtontrust.com. Diane is located in our North Palm Beach office.
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