Breaking the Silence: Helping Clients Discuss Estate Plans With Their Families-WhtPpr

October 2, 2009

While many talented wealth management professionals spend an extraordinary amount of time and effort to design elegant, tax-efficient estate plans, they often fail to assist clients with the sensitive task of discussing the plans with the clients' families. This article explores the reasons for this phenomenon, and suggests how to best seize the opportunity to better serve such clients.

"Shirtsleeves To Shirtsleeves In Three Generations"
Common experience suggests that most families fail to sustain wealth across multiple generations. An almost universal proverb reminds us that the third generation of a wealthy family is ill-advised to rest on its ancestors' laurels: in Italy, the expression is "From the stable to the stars and back again" and in China it is "From peasant shoes to peasant shoes in three generations."  Empirical research helps us understand the underlying reasons. One study of 3,500 families found that 70% failed to sustain wealth across generations. Interestingly, the study concluded that errors in financial planning or taxes accounted for less than 3% of the failures. By contrast, 60% of the failures were found to result from lack of communication and trust in the family and 25% from "unprepared heirs" (Roy Williams & Vic Preisser, Preparing Heirs). This is often surprising to wealth management professionals who devote their careers to designing technically elegant estate plans. But it can be viewed as an opportunity to serve clients more broadly, while deepening the advisory relationships with them.

Fear And Worry
So, if the stakes are so high, why is communication so difficult for wealthy families? The answer, most often, is fear. Clients worry that children informed of the estate plan will feel "entitled" to the wealth, become spoiled, unmotivated and isolated by envious peers. They worry that children might tell outsiders, who will exploit the knowledge to harm the family, or that disclosure will trigger conflict, such as sibling rivalry, years before the estate plan is even relevant. Clients also worry that disclosure today will limit their flexibility if they want to make changes in the future.

These fears are not entirely unfounded.  Every estate planning attorney can relate horror stories involving children with knowledge of an estate plan who try to declare a client incompetent before he or she can change the estate plan (for example, to favor charity) or children who make even more dastardly attempts to accelerate their inheritance. But such stories can be countered with equally chilling tales in which a second spouse manipulates or exploits a client to the detriment of uninformed children from a prior marriage.  The point is not to compare horror stories, but rather to take note of the more common, non-sensational ways in which clients' bias to under-communicate their estate planning intentions can create lasting problems.

Lost Poets And Disappointing Lotteries
In my experience, these more routine failures take two very different but equally troubling forms. The first arises when failure to communicate leaves highly responsible children with an inadequate understanding of their parent's desire that the family's wealth be used to make life more comfortable for them than it was for the wealth-producing generation.  The client in this case might be someone sympathetic to John Quincy Adams' famous quote: "I must study politics and war, that our sons may have liberty to study . . . commerce and agriculture, in order to give their children a right to study . . . poetry." A client who fails to clearly express this intention allows each generation to underestimate its ancestors' generosity and repeat unnecessarily its their hardships.

On the other hand, clients who are determined that children not use the parents' wealth as a justification for their own laziness are often surprised by the extent to which uninformed children can overestimate the extent of the family's wealth, or the parents' desires to facilitate and subsidize their study of poetry. In these cases, disclosure can help children who are waiting for an inheritance as a kind of lottery which never materializes as quickly or as abundantly as they assume it will.

Discomfort With Wealth - "Born on Third Base and Thinks He Hit a Triple"
An entirely separate problem caused by failure to disclose estate planning intentions is the perpetuation of feelings of embarrassment and discomfort with one's wealth.  Under-communication reinforces negative messages that children receive from the earliest ages about the family's wealth. These messages are offered by less fortunate peers (and their parents), extended family (such as the children's uncle who feels the client's wealth is the result of favoritism by the grandparents), and even politicians and the media (consider, for example, how wealthy people are often caricatured in the movies). Our own work with wealthy families often reveals surprising distortions about wealth that only a healthy, candid dialogue over many years can correct. Parents' secrecy about the family's wealth can also leave children with the impression that the parents don't trust them, which can do lasting damage to their self esteem.

Of course, clients have their own negative feelings surrounding their wealth, which makes it especially hard for them to break the silence. Wealth is a very sensitive topic to most people and discussing it honestly with others is often extremely uncomfortable. In fact, clients themselves may not be clear about the underlying motivations for their estate plans and may therefore not be willing or able to tell their advisors the full story. In those cases, the plan is not completely aligned with the client's true intentions and he or she is more likely to be ambivalent about discussing it with others, even family members.

The Advisor's Dilemmas
Finally, as wealth management professionals, we must also consider our own hesitations to engage in these conversations with clients.  Many fellow advisors discover over time that their attraction to our field is based, at least in part, on their own complicated attitudes concerning wealth (just as psychiatrists often discover they themselves have unresolved childhood issues).  The estate planning lawyer's focus on confidentiality and attorney-client privilege raises understandable anxiety about encouraging, and especially participating in, intra-family discussions about one family member's estate plan.  More generally, many advisors, given the nature of their training and maybe even the personality types that attract them to more technical fields, are more comfortable focusing on ascertainable results rather than process and on analytical subjects rather than feelings.

And, of course, the pressures of modern professional life- applicable to attorneys, accountants and wealth managers alike - often discourage advisors from initiating conversations about communication issues. Advisors who charge by the hour might worry that such issues will be seen by clients as somehow "softer" and harder to justify than more explicitly technical issues requiring specialized expertise. And advisors who charge fixed fees or asset-based fees might worry that introducing more open-ended communication issues might bog the relationship in an unprofitable morass.  

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