'What’s the best way to tell our grown children about our estate plans without creating a family drama?"
That’s the question I’m most often asked when I tell people I’ve written a new book about money, family and communications, The M Word: The Money Talk Every Family Needs to Have About Wealth and Their Financial Future.
It’s no wonder: More than $15 trillion will be transferred to the next generation between 2007 and 2026.
Most Family Transfers Are Flawed
Problem is, there’s a 70 percent failure rate when transferring family wealth from one generation to another — a loss of control of assets through mismanagement, poor investments or the like, according to Roy Williams and Vic Preisser, two of the founders of the Institute for Preparing Heirs.
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Many of these failures occur because families don’t do enough to prepare their heirs for the handoff. It’s like giving your 16-year-old son the keys to your car without a driving lesson.
Being unprepared to inherit money won’t kill someone, of course, but it can certainly wreak emotional, mental and financial destruction.
The Conversations Parents Don’t Have
Unfortunately, most parents fuel rather than prevent this kind of havoc. They think: “I’d rather not talk about it” or “We’ll set up a time to chat about it later.” The “it” in these phrases is, of course, money. In far too many families, money is a dirty word, a taboo subject, what I call the M word.
But in my experience, one of the most common conflicts among family members arises when they are probating an estate that hasn’t been previously discussed.
Regardless of whether all the children will get exactly the same inheritance, if they know in advance what the will says, the parents can reduce anxiety in an already stressful situation.
Generally speaking, what you should tell your adult children about your estate ought to be guided by your family’s values and by each child’s ability to handle the information.
When One Child Has Special Circumstances
In many families with grown kids, there is one child who has issues involving money. This could be the result of his or her bad habits or perhaps a physical, mental or emotional challenge.
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In that case, you might need to have a separate conversation with him or her and create a special arrangement that will work for these circumstances.
Otherwise, though, I think a balanced approach to sharing information about family wealth is the best option.
Who’ll Get the Jewelry?
It’s extremely important to have a conversation with your adult children about who will get your personal property.
That’s because one of the most contentious aspects of settling an estate can be the distribution of things like Mom’s diamond engagement ring, Dad’s collection of abstract expressionist artwork or Great-Grandma’s gold-plated china. This is just as true for items that aren’t worth much money, but have a great deal of sentimental value.
When you have this conversation, give each child a chance to talk about his or her favorite items and come to an agreement about how everything will be divided up.
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Not only will these give your family members a chance to share stories and talk openly about items that mean a lot to them, it will encourage a healthy dialogue and cooperative spirit regarding estate matters. This will prove to be extremely valuable down the road.
The Family Estate Planning Meeting
After the discussion about personal property, you may want to have an attorney draft a simple summary of your estate plans and distribute it to your heirs. Then, hold a family meeting to review the document and answer any questions.
Before I talk about that meeting, a word of advice: As a rule, when it comes to family wealth, I’ve found it best to treat your children equally in your will. Of course, if one is incapacitated in some way or has special needs, like autism, you may want to provide additional financial assistance through a special needs trust, an insurance policy or a larger portion of the estate.
That brings me back to the family meeting about your estate plans. In this session, which should happen well in advance of any wealth transfer, you’ll want to tell your grown kids where your important financial documents are located, what they can expect in the will and what roles they may play in the future managing the estate.
If one child will get a bigger inheritance than the others for reasons like the ones I noted earlier, this is the time to say so. Otherwise, if the kids find out when the will is read, you might unleash a tsunami of emotions, which could have largely been avoided through advance conversations.
By explaining to all your kids why one child will be given a larger share and writing a will that says, in effect, “I love you all just as much, but this is what we felt we had to do as parents,” you may avoid bad feelings and the possibility of a contested will.
How to Make the Meeting Successful
Before the talk, determine the goals and objectives you want to achieve and draft an outline or an agenda, with a few talking points. Choose a quiet place for the meeting that will make everyone feel comfortable and secure.
During the session, speak in a calming tone and use such words words as "safety," "security" and "protection."
If the environment gets toxic, don’t lash out or shut down out of fear, anger, embarrassment, defensiveness or any other unpleasant feeling. Make sure everyone has an opportunity to speak. Should thorny issues arise, try to come up with solutions.
It can be helpful to have a trusted adviser — like your accountant, attorney or financial planner — at this family meeting, to help ensure an atmosphere of tolerance, patience and impartiality.
But no matter how skilled a pro you invite, remember that you’re the one ultimately responsible for ensuring a successful transfer of your estate.