In far too many families, money is a dirty word, a taboo subject: the M Word. Talking about it can be disturbing and cause enormous anxiety and conflict. Regardless of the amount or the source of money, the number or the age of family members, or the family’s economic or social status, it is difficult for most families to talk about money.
It is no surprise that most families often react to major life events by making quick decisions surrounding these important transitions, rather than proactively and carefully evaluating all their options before the events take place. But in my experiences, that’s true of less dramatic events as well. At some point decisions have to be made and actions have to take place to manage the various components of a plan. By then it is often too late for a dispassionate and carefully crafted conversation to take place. Not having these money talks can be disastrous to the well being of our society’s most important social structure: the family. The absence of the conversation places the family and the assets at risk. Saying nothing or saying the wrong things can cause real and potential rifts both today and for years to come.
Adding to the urgency of this issue is that an unprecedented transfer of wealth is taking place in our country. According to the Center on Wealth and Philanthropy at Boston College, $15 trillion is passing to heirs from 2007 to 2026 and more than $59 trillion is passing from 2007 to 2061. With a 70 percent failure rate when it comes to transitioning wealth (according to research by MIT, the Economist, and Forbes), in the context of this huge transfer of wealth taking place, large inheritances are being forfeited and relationships are being poisoned. I believe it is primarily because parents and children, husbands and wives, and brothers and sisters find it difficult, if not impossible, to talk to and trust one another about the family’s money.
The bottom line is: If you don’t prompt your clients to talk about money during life’s transitions, they can potentially lose their money and their family.
When should you be encouraging “money talks”? I believe that every transition point in life is a money transition. If you dig beneath the surface, you will see money is involved and is a key component that drives whatever life change or stage your clients are experiencing. In the back of their minds, or maybe at the very front, it is likely they are assessing the financial impact of their options.
If a client is getting married, he or she should fully disclose assets, liabilities and goals, decide whether to merge or segregate the two individuals’ finances, and discuss any lifestyle compromises that may be necessary.
When a client is starting a family it is vital to figure out how he or she will provide children with short-term and long-term financial security and education funds.
Getting divorced means having to divide marital assets while trying to preserve financial stability and family sanity.
Remarriage often involves the blending of disparate family cultures and lifestyles, and deciding on individual and joint responsibilities and obligations.
Changing a job or shifting careers typically mandates a fresh self-assessment of skills and value in the open market, an updated look at current finances, and possibly a reevaluation of goals.
Experiencing a decline in financial circumstances forces the recalculation of cash flow, a reassessment of lifestyle and perhaps new spending and gifting patterns.
If a client or his or her family member is diagnosed with a serious illness requiring long-term care they will need to assess current and expected costs, determine existing income resources, and integrate insurance and other instruments that can help support care.
Having to take over the affairs of an aging parent means determining their financial health, and then developing estate-planning and health-care strategies that provide both asset protection and quality care.
“Boomerang kids” returning to the nest should prompt a calculation of the affect of the return on individual and family finances, and the drafting of a plan to maintain family harmony, parental assets and the adult child’s financial and emotional independence.
Preparing for retirement today means re-evaluating portfolios and expectations based on new economic circumstances and increased longevity.
A death in the family forces family members to assess the financial affect on their own lives, and should lead to the proper distribution of estate assets, the payment of required taxes and the eventual settling of the estate.
If a client is going to prepare his or her heirs and plan for a successful estate transfer, he or she will need to transfer family values as well as provide meaningful education and any necessary professional support.
Transferring a family business requires creating a plan that addresses some very complex, multigenerational financial and psychological issues, involving the dynamics and health of both the family and the business.
Prompting your clients to have money talks about all these transitions doesn’t mean you need to add a family therapist to your bundle of skills and services. Instead, you need to gently encourage clients to focus on the need to have money talks and help them gather the tools and information they will need to manage these difficult conversations. Here are some questions you might ask:
• What transition point are you going to face in the near future?
• What issues are you confronting?
• Have you spoken with any family members about these issues?
• If you have spoken with them, have the conversations gone well? Have they been productive and helpful or have they been painful and detrimental?
• If you have not spoken with anyone, why is that? Are they unwilling to have the conversation, or are you?
• Do you think including me in this conversation might help?
• What tasks could I or your other professionals perform to help make this conversation successful?
• Do you have a structure or plan in place to deal with the transition you are facing?
• If not, would you like me to work with you to help create one?
• If you do have a plan in place, does it need to be revised?
• Are family members and your other professionals all aware of the plan, and have they had a chance to comment on it?
• Have you had a meeting to discuss a finalized plan and make sure everyone is on board?
• Do you have all the documents and instruments you’ll need in order to execute the plan of action?
• If you have those documents and instruments already in place, do any need to be revised?
• What transitions do you anticipate facing in the short-term, mid-term and long-term future? Have you ever had any discussions about these pending transitions? Do you have any plans in place, even in just a rudimentary state, to deal with these upcoming life events?
Besides encouraging money talks and helping clients gather the tools and information they will need, you can also steer them to resources that can teach them how to manage these difficult conversations, whether books like my own or professionals who specialize in family financial transitions. By using “ The M Word: The Money Talk Every Family Need to Have about Wealth and Their Financial Future” as your guide and if your office setting and communication skills are up to it, you can even offer to host the conversations and make presentations to the entire family.
You’ll be serving your clients well if you actively encourage them to have money talks and offer all the support you can. Whether they give voice to the desire or not, most affluent families are looking for some member of their professional team to step up and help them navigate these emotional and financial minefields. The financial advisor who helps his or her clients avoid or overcome anxiety and conflict will strengthen and deepen the client/advisor bond. And by participating in some role in money talks, a financial advisor may extend that bond to subsequent generations.
Lori Sackler, CPA, CFP, CIMA, is a senior vice president at Morgan Stanley Wealth Management and author of THE M WORD: The Money Talk Every Family Needs to Have About Wealth and Their Financial Future.