Bridging the Gaps

Tab 1

Summer 2012

Families like to discuss a variety of topics, but money usually isn’t one of them, because perspectives, attitudes and behaviors around spending and investing can vary greatly, particularly across generational lines.


Not having important financial conversations between older family members and future heirs could be detrimental and affect the transfer of wealth.


That’s because about 70 percent of estate transfers fail within one generation, due to evaporated wealth and disrupted family harmony, says researcher Roy Williams, who conducted a 20-year study on 3,250 high-net worth families that was showcased in the book, “Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values.”


When Williams conducted the study, he and fellow researcher Vic Preisser initially thought taxes,

governance and preservation were the reason for the high failure rate of estate transfers. “Everyone focused on how to avoid the rags to riches to rags syndrome,” Williams says. “But really it was mostly a breakdown of trust and communication, or a lack of agreed upon mission.”


A Variety of Viewpoints

Each generation was raised under very different economic conditions shaped by profound world events, which can greatly affect perspectives and conversations about wealth, says David Stillman, co-founder of BridgeWorks, a company dedicated to training and consulting on generational issues in the workplace and the marketplace.


For example, traditionalists growing up during the Great Depression and World War II may be very conservative about their money and may not like to talk about it, Stillman says. Flash forward to Millennials, who until recently had grown up in the very affluent times of the 1980s and 1990s. Their Baby Boomer parents may have communicated about everything, which means Millennials expect financial discussions, Stillman says.


Those diverse viewpoints and generational differences could potentially lead families to make negative assumptions based on stereotypes that could undermine conversations: some senior citizens may watch every penny, middle agers may max out budgets between child-related costs and self interests, and the younger set may be focused on games, toys and good times.

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Summer 2012

That’s why considering generational differences is often a key step when shaping communication styles about finances. “It’s important we don’t assume heirs as well as patriarchs and matriarchs are looking through the same lens,” says Stillman, author of “When Generations Collide: Who They Are. Why They Clash. How to Solve the Generational Puzzle at Work.”


Driven by Family Dynamics

That’s exactly what Stillman did when he met with a family struggling to find direction within their family foundation. The younger generation didn’t want to give to the same causes as the patriarch, Stillman says, “and they started to battle about whose causes were better.”


After finding common ground that “no one’s cause was better or worse, just different,” Stillman worked to help the family compromise and agree on a hybrid solution.


The most important decision the family made was to agree that it was more important to continue a legacy of giving than to continue giving to specific causes. The older generation also took an important step in introducing the younger generation to their causes, rather than continuing to assume the young generation would automatically understand and relate. Adding that critical step of nurturing

and communicating made all the difference, Stillman says. “The younger generations didn’t realize how powerful and amazing some of the causes were,” he says. “And the older generation realized they hadn’t done a good enough job informing the younger generation.”


Communicate Your Lineage

While many influences, both internal and external, shape individual perspectives on amassing wealth, the barriers to having a frank financial discussion may be completely unrelated, says Heidi Steiger, East Region President for The Private Client Reserve of U.S. Bank. “Frequently, the reason family members won’t talk about money has nothing to do with wealth and everything to do with other reasons. Those other reasons need to be neutralized and taken off the table because the goal of money discussions is not necessarily to get everyone to agree, but to have constructive and open conversations.”


Williams says that starts with building trust among family members. In other words, as long as lingering grudges, past slights and unresolved disagreements between family members remain paramount, any money discussion will likely be tainted. Once the conflicts have been addressed, Amy Zehnder, a Senior Wealth Dynamics Coach within Ascent Private Capital Management of U.S. Bank, suggests breaking the ice with a hypothetical question such as “What would you do if you were handed $1 million dollars tomorrow?”

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Summer 2012

“Generic conversations that don’t specifically involve the family wealth can demystify the topic and allow for healthier discussions once the curtain is pulled back on the family finances,” she says.


Stillman adds it’s important to mentor and educate. “It’s a discussion, not a lecture,” he says. “Older generations have values, ideas and legacies they want to protect, but they can’t force these things on the younger generation. It’s about having a discussion on why these things are important to the family and why they want them to be upheld.”


As for telling younger family members about the details regarding trusts, wills and other estate planning tools, consider the future heir’s readiness to understand the concepts and terminology, Zehnder says. This can differ from child to child and will frequently hinge upon the heir’s financial knowledge and skills.


Picture your family and your advisors like a football team, suggests Williams.


“Your lawyers, accounts, and investment advisorsare the offensive line,” Williams says. “The heirs are the receivers; mom and dad are the quarterback.The kids have never been trained on how to playfootball, they don’t even know how to put on a uniform or how to run a pattern,

and tomorrow, you expect them to play against the New York Giants? How successful do you think they will be?”


Discuss Mission and Vision

To increase the odds for a successful transfer of wealth, Zehnder says grandparents and parents should avoid focusing on the specific dollar amounts. Instead, the family elders should share the mission and vision of the family wealth.


To build family communication...


“The primary reason for a lack of success in transferring wealth is not poor estate planning, but a lack of trust and communication among family members,” Zehnder says.


“One of the reasons the heirs are unprepared is because when the values around the wealth and the purpose of the wealth aren’t passed along, it lessens the chances for sustained, long-term wealth continuity.”


To avoid that situation, Zehnder suggests family members describe and define their mission to younger generations, why the wealth exists and what it’s meant to achieve. Give future generations your vision by articulating an inspirational statement that clarifies what the family wants to do with its wealth and why that’s important.

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Summer 2012

While generational characteristics are important to keep in mind, Zehnder says financial habits may also be influenced by four additional factors:


  • A person’s innate personality, which can be categorized as a planner (generally savers), a feeler (generally spends on family), a thinker (generally analytical, data-driven spenders) or a doer (generally risk-takers and free spenders)
  • The money-related values of the household in which the individual grew up
  • The governances, or rules and policies, around family money
  • The economic conditions that the person has experienced


Re-Define Your Estate Plan

Once you’ve overcome generational differences, you can use the family’s wealth vision and mission to establish the foundation for a comprehensive estate plan, Zehnder says.


“For example, if the family decides that one missionof its wealth is to achieve maximum intellectual capital, i.e., through education, then the family can align its estate planning to support educational opportunities,” she says. “If the wealth is to make an impact through philanthropy, then assets and investments can be aligned accordingly.”

Having a strong vision then sets the infrastructure to help achieve the mission. If strong education is a goal, Zehnder says the estate plan might provide each family member an opportunity to pursue the highest level of education, vocational training or skill development in order to follow their life passion.


Whatever is included in the estate plan, the document’s provisions should offer some leeway for future uncertainties, says Jenna Guenther, a Director of Wealth Planning within Ascent Private Capital Management of U.S. Bank.


Guenther recommends creating “flexible estate plans that allow for generational differences and for unknown differences that may surface in the future.” For example, “provisions in estate documents could be drafted so that generational differences do not become an obstacle to achieving the original intent for the wealth many generations down the road,” she says.


Tom Potts, a professor of finance at Baylor University, agrees and suggests that the full impact of any estate planning maneuvers should be carefully weighed. “Too much wealth distribution too early in life can be a problem in that it can inhibit motivation — recipients may not work as hard because they have all that they need,” Potts says. “It’s not so much that the younger generation can’t handle the money, but it’s important to continue to allow for that motivation.”

Tab 5

Summer 2012

At the other end of the spectrum, Potts says that Baby Boomers facing an “imminent inheritance,”those realistically expecting to receive an inheritance in the next year or two, should stop looking at their portfolio in isolation. Instead, they should start considering their elderly parents’ holdings as well, particularly with respect to the volume of fixed-income investments.

“There’s no template that you can just plug in and assume it will work for all families,” Potts says. “But it’s not just saying that I’m leaving you a large amount of money. It’s doing it in a way that’s more responsible.”



Please see important information below.

Wealth Transfer