Wealth Transfer: The Emotional Side of Money
The thought of passing down wealth to your children and future generations can bring feelings of pride and joy, as well as fear and trepidation. That’s understandable because there are two sides of money: the intellectual, “how to” side and the emotional side.
Thoughtful advanced planning can curb those fears by helping you to discover your true intentions, thereby preparing the recipients (and you) for the gifts. In an earlier fathom post, I discussed how to simplify the intellectual side by creating a wealth transfer framework. But I’ve found that it’s often the emotional side that leaves some families stuck in inaction.
Unease typically sets in when people realize the powerful impact a major gift can have on an individual recipient’s ambitions and feelings of self-worth, as well as on the family’s long-term relationships. Because transfers are permanent, concerns about distributing wealth fairly and giving away too much too soon often pop up.
Consider Joleen and Miguel, a couple who recently sold a valuable family business as they headed into retirement. They long intended to give their excess wealth to their two adult daughters who were on different life paths. The oldest had a successful career with a prestigious law firm and no intentions of marrying. She had accumulated a large amount of wealth on her own and didn’t appear to need anything. The younger daughter worked in an office, was married to a teacher and had two young children. This couple also worked hard, but making ends meet was a struggle for them. The two sisters were close, but the older one had a history of being critical of the younger one.
Joleen and Miguel, while eager to share their wealth with their children, had many questions: Should they give equal amounts to their children when one clearly needed more than the other? If they gave unequal amounts would that trigger resentment in the older daughter? Their son-in-law had a history of poor financial decision making, and while Joleen and Miguel were fond of him, they were uncomfortable making a large sum of money available to him. Would leaving him out of the gift strain their daughter’s relationship with him … and their own relationship with him and the younger daughter? Would materially changing the financial situation of the younger daughter’s family cause her children to grow into entitled and ungrateful adults? Was now the right time to make large gifts, or should they dish the money out over time … or wait until they both die?
There was a lot to unpack for this family, and in my experience, that’s common. Tackling emotional issues before the intellectual aspects tends to create clarity and leads to more satisfying decision-making.
What are your family’s feelings about money?
As you think about creating an intergenerational wealth transfer plan, honestly examine these 10 areas of your family’s dynamics.
1. Core values — What are your and, if applicable, your spouse’s personal core values? What core values have you intentionally or inadvertently established for your family? Have you clearly articulated the family values in writing? Have you shared and discussed them with the next generations? Well-articulated values can serve as helpful guidelines when considering intergenerational wealth transfers, and the writing process in and of itself can lead to clarity.
2. Communication — What are your family’s communication practices? Are you satisfied with them? If not, what work needs to be done by you and others to allow more open and productive communication?
3. Purpose of money — How do you value wealth in general? Within your family, have you used money mainly to dominate, incent, punish, impress, benefit, entertain, show affection, etc.? How has this impacted the next generations’ attitude about money?
4. Sharing information — What details about your wealth have you shared with your family? What haven’t you shared? Why do you think you haven’t shared that information? Are there buried concerns that you should explore and resolve before contemplating a transfer plan?
5. Relationships — How do you relate to and engage with the next-generation family members? How do they get along with each other? How have these relationship dynamics shifted over time? What shifts do you expect in the future?
6. Expectations — What are your expectations of the next generations of your family? Have you clearly shared those expectations with them? What do you perceive their expectations of you and their inheritance are? Have you confirmed these perceptions with them?
7. Experience — What lessons did you learn about money growing up? What was your biggest financial purchase to date? How did that purchase make you feel? What has been your biggest financial regret? What did you learn from that experience? How do these experiences and lessons color your thoughts about making gifts now?
8. Why? — What is the purpose of giving assets to the next generations? If you could look back from your grave and determine that you successfully transferred assets, what would that success look like?
9. Their goals — What ambitions do individual family members have? In what manner could you transfer your wealth to help them fulfill their financial objectives? What would happen if you did not transfer wealth to the next generations? Who would be impacted? How would they be impacted?
10. Preparedness — How have you prepared the next generations to receive wealth? Do they have the perspectives and skills to handle the assets you have in mind? What gaps exist, and how can you help close them?
Talk about it
As the giver, you (in partnership with your spouse if you have one) might want to reflect on these questions alone first. Then talk about them with family members, more than once, and bring in your financial or other trusted advisors to facilitate the conversation if help is needed. Open communication helps to prepare the next generations for what to expect and how to manage the family wealth responsibly and honorably.
After more than a year of productive conversation with Joleen, Miguel and their children, we helped craft a thoughtful transfer plan that met everyone’s needs and gave them all peace of mind. Importantly, all adult members of the family understood the reason for the gifts and the expectation of what the gifts would provide. Joleen and Miguel ended up giving an equal amount to both their daughters in trust and devised different distribution provisions that suited each of them. The trust for the younger daughter purchased her family’s first home, which freed up cash and greatly reduced stress for her family.
All the deep work on the front end allowed Joleen and Miguel to make their gifts with intention and left them feeling more confident and excited about the financial legacy they created.