Contributed by: Kali Hassinger, CFP®, CDFA®
You may have heard the saying, “Shirtsleeves to shirtsleeves in three generations.” In a family, it refers to the phenomenon of a generation building wealth, passing it down to the second generation, but going broke by the third. Whether you are passing down investment assets or a family business, many parents have the hope that their money will enrich the lives of their children, grandchildren, and future generations for years to come. However, successful transitions do not just happen when assets are distributed. Like most challenges in life, transitions require planning, communication, and coordination.
When planning for generational wealth transfers, opening the lines of communication is often the first and most difficult hurdle to overcome. Parents may be reluctant to share information on wealth and money for many different reasons. Our society as a whole often treats money as a taboo subject that is rarely discussed in personal terms. Other concerns could be stifling an heir’s initiative or the threat of a child’s future divorce. Simply avoiding these conversations, however, can lead to unintended confusion, irresponsibility, or resentment.
Family meetings devoted to discussing wealth can help heirs better understand their parents’ plan and any possible role they may play in the future. Family meetings also give participants the opportunity to express their views, accept responsibility, or acknowledge where they may need additional help in the future. There are many ways these meetings can be conducted, but they all center on the same objectives of trust, communication, and understanding.
A meeting with the family’s advisors, financial planner, attorney, and CPA should take place at some point as well. This will help the family to gain both comfort with the advisors and a greater understanding of the level of assets in question. With the passing of the SECURE Act eliminating the stretch IRA in many situations, retirement assets that are transitioning to the next generation may require more detailed tax strategies. The Estate tax limit has also fluctuated drastically throughout the last few decades, and that will most likely be the case going forward. It’s important that those who will ultimately gain control of assets understand why plans were put into place and how they will function going forward. While no amount of planning can ultimately guarantee success, when the lines of communication are open between owners, heirs, and advisors, a family is able to develop the best strategy for all involved.
Successful family meetings are intended to engage family members, not be a set of rules handed from one generation to the next. Healthy communication builds trust, and trust builds understanding. We often encourage clients to involve children in their Annual Review meetings when they're comfortable. If full disclosure of all information seems too invasive initially, have a conversation with your planner prior to the meeting. We are happy to tailor the meeting as necessary and can review only the portions of your plan that you are comfortable sharing!
