Intergenerational Planning: Time to Start Planting Seeds

Brett Horowitz

Brett Horowitz, CFP®, AIF® Principal, Wealth Manager

It takes the average recipient of an inheritance 19 days until they buy a new car.1

                Over the past several years, some of our clients have participated in client advisory boards in which they tell us what they want and what keeps them awake at night. One of the biggest challenges is bringing up finances and financial planning with their children. They are not alone. Intergenerational planning, in which families look at long-term financial needs together, is sorely missing. But to the surprise of many, it’s not just the parents who want this connection—it’s the kids as well. A study from MFS Investment Management reports that more than one-third of those in the “sandwich generation” (people ages 40 to 64) worry about aging parents’ financial issues in addition to their adult children’s financial issues.2 It’s about time to get everyone involved.

                According to the same study, less than half of the sandwich generation has prepared a list of assets, created a durable power of attorney or living will, purchased long-term care insurance, or established a trust. Further, even if they have checked off the boxes for these basic estate-planning tools, many have not communicated this information to their children.

Given that the older generation has been reluctant to have needed discussions, should we be surprised that the sandwich generation is concerned about their parents’ finances, yet hasn’t done anything to prepare their own children for what’s to come? All too often, the burden of managing a parent’s deteriorating health or financial situation falls to an adult child, who must step into a parent’s shoes at the last minute and try to cobble together information to form a basic plan. If a parent doesn’t discuss their specific assets with their adult children, and if no one knows they exist, those assets may not be used for their care. Assets may wind up being claimed by the state or federal government, adding to the more than $58 billion in abandoned property. Recent statistics suggest that 70% of families lose control of their assets when an estate is transferred to the next generation and 90% of the wealth is spent by the third generation. Why? About two-thirds of high-net-worth individuals have disclosed little about their wealth to their children, with the most common reason being that they do not feel that the next generation is financially responsible enough to handle an inheritance. Parents can head off this asset transfer problem, while at the same time avoiding divisive and costly family feuds, by taking the lead in these transformative conversations.

                The good news is that many of our clients have become more organized while working with us, and a lot of this information is in one place. But unless this information is disseminated to adult children, it remains stressful for everyone involved. Parents should suggest a family meeting with all their children at the same time to help ensure that their message is received uniformly. Having these conversations one-on-one may cause family members to fight, harbor grudges, or get confused, with the result that the discussion has the opposite of the intended effect.

For instance, parents may choose to leave money to their children in a trust, much to the dismay of the children, who may believe that this is being done to prevent them from having unfettered access. But perhaps the parent is trying to protect the children from creditors, due to having litigious jobs. Another reason could be a desire to protect money from a child’s former spouse. There could be estate or income tax reasons to form the trust in a certain way. Or it could be as simple as wanting to make sure that their frivolous-spending children do not run out of money within the first few years of receiving the inheritance. Parents may think that they are encouraging hard work by not disclosing their financial situation to their children, but they may in fact be fostering ignorance and anger.

These joint meetings may help a parent spell out their reasoning for how they are dividing their assets (including the house and personal belongings) and how they have decided who will be the estate’s executor, have durable power of attorney, or be the primary caregiver for minors. It’s much easier to understand what a parent wants to accomplish with their estate plan if they’re still around to explain it to their family. This doesn’t mean that specific numbers have to be included and that full disclosure be given, but it’s up to the parents to start the conversation and share what they are comfortable sharing.

In other cases, the parent is more interested in handing down values than money. Perhaps all that’s needed is a simple conversation about the importance of having a financial team—consisting of a financial planner, estate attorney, and accountant—establishing a financial plan, saving and investing money, and giving back to charity. So often we hear from clients that a discussion early in their childhood about money formed the foundation for their lifelong financial habits. If the situation is more complex, a family facilitator might need to be hired, someone who can broach difficult, personal, and possibly painful subjects, with the end result being a unified family that is more aware of each other’s feelings and goals. These conversations can be done at the 30,000-foot level if not everyone is comfortable sharing information, or they can be very specific. No one wants a child to feel entitled to expect a large inheritance, but as a parent, do you want your children completely left out of the loop?

                Our firm can help parents review their long-term financial plan with their children, discuss where accounts and important documents are located, and provide contact information for the parents’ financial team. The family should review the will/trust and communicate their wishes about health care preferences to avoid squabbles (who will ever forget the Terry Schiavo situation?). Getting everyone in the same place keeps the message consistent and unequivocally removes any doubts that may have been building. It’s not going to be the easiest of conversations, and all parties may start off anxious, but reticence about the subject will surely backfire. If parents are concerned about their children and children are concerned about their parents, doesn’t it make sense to get everyone together in a room to talk?

1 The source for cited statistics is a Time article, available at: http://time.com/money/3925308/rich-families-lose-wealth/

 

2 The source for cited statistics is an MFS study available at: http://www.mfs.com/about/news/press_080296.html

 

Feel free to contact Brett Horowitz with any questions by phone 305.448.8882 ext. 216 or email: BHorowitz@EK-FF.com

For more information on financial planning visit our website at www.EK-FF.com.