Effective Family Communication is Key to Ensuring a Successful Transfer of Wealth

Family Communication for Wealth Transfer

By Paul Tramontano, Executive Managing Director, Wealth Advisor

Effective communication within a family is more than a courtesy; it is a necessity for a successful transfer of wealth to the next generation. We have all heard the nightmares about how multi-generational wealth is squandered within three generations. In our experience, poor communication, and the inability to establish shared family values are the most consistent themes we see when families fail to meet their legacy goals.

Establishing a comprehensive estate plan to share your goals and wishes with your family members and heirs through candid, ongoing conversations are key to preserving your family legacy and ensuring alignment across generations. In an estate plan, one of the biggest mistakes when transitioning assets to the next generation is not communicating at the appropriate time about the intent of the overarching structure. Too often, the head(s) of a family will steer clear of difficult conversations to avoid hurt feelings, which leaves family members to struggle with the emotional toll of their decisions. There are often valid reasons to choose one heir over another as executor or trustee, for example, or to gift tangible assets in a specific way. Communicating one’s plans and logic while still alive can make it a much smoother process for those left behind. Those conversations can often be difficult, but they are almost always better received when they come from the architect of the plan. Securing your heirs’ understanding of your plans doesn’t mean that every detail needs to be revealed, although there can be value in sharing that at the right time.

The most effective estate plans are those in which family members aren’t forced to “police” each other’s spending or life decisions but provide some oversight by the family decision-makers in how the money is dispersed. The first generation can sometimes unwittingly create friction between beneficiaries just by the way in which they craft the overall plan. A trust structure enables you to customize and control how your wealth is distributed and can be designed to create incentives to support important family values. The use of trusts can also allow a family to protect against many risks that accompany wealth, such as spousal and creditor claims. We often advise families to wait until your heirs reach a certain age or maturity level to confirm they are ready to manage those assets. By age 40, most people have hit major milestones in their lives and have learned from mistakes made in their youth; this may be the appropriate time to add a beneficiary as co-trustee. By adding this seemingly minor provision to the trust, beneficiaries are empowered with the prospect that they can control the future of the assets alongside the guidance of another trustee. Determining the age at which to start communicating the complexities of wealth to your children can be difficult for many families. However, the most significant challenge can be to ensure they are motivated and incentivized to work in adulthood with the goal of becoming productive members of society.

Cautionary tales abound of families who go from “shirtsleeves to shirtsleeves” in three generations, but in our experience those members of the next generation who work hard and live productive lives become the happiest adults. It generally doesn’t matter what profession they choose, as long as they are engaged and productive. When that happens, we have found those heirs to be the most fiscally responsible stewards of their inheritance. Parents may think they know best when their children are emotionally ready to handle conversations around wealth, but often, they are surprised to learn that the next generation is already thinking about what their inheritance may look like and what responsibilities they might inherit with that wealth. For that reason, it is important to start having early conversations around money management with your children to promote financial literacy at a young age. Having led many of these family discussions over the years, we have found that inviting junior members of your advisory team to speak with the next gen is an effective way to include your children in the planning. In addition to creating a team that has the longevity and family knowledge to provide continuity for decades into the future, there is a relatability that encourages a comfortable and transparent dialogue.

Finally, the most successful conversations about the transfer of wealth are those where comprehensive estate planning is led by an experienced team of professionals. Your trusted advisors should lead multi-generational meetings where children/beneficiaries can listen and can ask questions. This process teaches the next generation how to collaborate and work with advisors who serve in their best interests. A successful transfer of wealth is evident when younger family members ask the same questions during a financial plan review that they learned from the previous generation. That is a sure sign that you have prepared them for the many financial complexities of wealth. Fostering open, honest, and regular conversations can help families establish trust, educate heirs, avoid conflicts, and adapt to changing circumstances, ultimately preserving and enhancing wealth across generations … as well as family harmony.

Contact us to explore how we can help your family navigate the complexities of wealth transfer.

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About Cresset

Cresset is an independent, award-winning multi-family office and private investment firm with more than $45 billion in assets under management (as of 04/01/2024). Cresset serves the unique needs of entrepreneurs, CEO founders, wealth creators, executives, and partners, as well as high-net-worth and multi-generational families. Our goal is to deliver a new paradigm for wealth management, giving you time to pursue what matters to you most.

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