NEW YORK (Reuters) - Most families would not fail to invite their sons- and daughters-in-law to Thanksgiving dinner, but a discussion of the family inheritance is another matter.
“It’s almost like an ‘aha’ moment when they start to think about estate planning,” says Roger Hobby, president of Wilmington Trust’s northeast division.
When a matriarch and patriarch come into his office to talk about their money, one of the first things Hobby asks them to do is decide who counts as family for the discussion. Always included are the couple’s children and grandchildren, but spouses are a matter of debate.
An ever-expanding brood is likely to include divorces and, thus, step-relationships. The Pew Research Center has found that 40 percent of American adults have one step-relative in their immediate family.
Any complications can lead to dire consequences. Family wealth tends to dissipate over time; only 10 percent succeed in passing a family fortune along to the fourth generation, according to a study by the Williams Group.
“If you aren’t intentional about it, most likely you’re going to lose it,” says Stacy Allred, wealth strategist for Merrill Lynch’s Private Banking & Investment Group.
SET UP A FAMILY MEETING
Decisions about estate planning typically happen just between the wealth creators and their financial advisers. But more advisers are pushing clients to bring beneficiaries into the picture, especially when planning for multiple generations.
Molly McCullough of Seattle learned this lesson as her family dealt with the assets that her parents are passing down to seven children, 29 grandchildren and 28 great-grandchildren (and counting). When her parents started the process years ago, they decided things behind closed doors, dividing a family business among their three sons while excluding their four daughters.
“That caused tension among boys and girls,” says McCullough, who at 49 is the youngest sibling. Then the parents reversed course, splitting a second business among the daughters, also without consulting them.
Spouses were included in the original distribution plan, but not after one of the older siblings got divorced. When the father died in 2008, all seven siblings shared a third business equally.
“The moral of the story is that it would have been much easier for it to be equal to all seven from the start and to have conversations about it,” McCullough says.
Now the family works with an adviser and meets three times a year to discuss financial matters.
Some families combine their meetings with annual vacations, wrapping financial discussions around fun.
“The more people you can get into the room, the better off you are,” says Matthew Wesley of Woodinville, Washington, the financial consultant for McCollough’s family.
Wesley says some families save intricate financial details for “executive” sessions that are only for a select group, while making sessions about charitable giving more open.
THINK OF SPOUSES AS PARENTS
One question to consider about including spouses: Do you want them to know about it now or later? Spouses talk, so eventually they are going to know the numbers, and they tend to get resentful about secrets.
“If you include a grandchild but not both parents of that child, it’s going to be crazy awkward,” says Tom McCullough, a Toronto wealth manager and co-author of the new book “Family Wealth Management.” (He is not related to Molly.)
Tom Rogerson, a senior managing director and family wealth strategist at Wilmington Trust, worked with a family that included an ex-spouse on a top governing board. Rogerson thought it was odd, but the former son-in-law had strong financial skills, and he was the father of a grandchild.
Families rarely change their estate plans to add or remove parties, advisers say. It is hard enough to get them to go through the process once.
One way to deal with the repercussions of this inertia is for families to focus on prenuptial agreements.
“In divorce, I’m stunned that there is so little estate planning occurring,” says Lili A. Vasileff, a certified divorce financial analyst who operates the website divorcematters.com.
Vasileff has seen clients leave everything to their ex-wives because they had not updated their wills, or cut out children from a first marriage because they are not beneficiaries on a life insurance policy.
There is no arbiter of fair in families. Usually, it comes down to family values.
“It depends on the closeness of the relationships,” says Tom McCullough. One client he worked with handed out checks equally to all grandchildren, regardless of when they joined the family. Another distributed money for specific purposes, like education. A higher dollar amount would then go to the ones who went to private colleges than for those who went to state colleges.
Merrill’s Allred worked with one woman who handed out checks at the annual meeting, but only for the grandchildren. One daughter got six checks for her brood, which included stepchildren, but an unmarried daughter was always left out.
The grandmother thought it was fair. The single daughter? Not so much.
Editing by Lauren Young and Lisa Von Ahn
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