Inheritance planning takes patience and understanding, say financial experts in wealth management. It also means financial planners must be proactive—and often bring up painful family subjects even before their client families do.
Neil Douthat, a UBS financial advisor in Kansas City, Mo., is trying to build a bridge between the generations of his client families when he does inheritance planning by taking a more active role in the family life.
“I learned a long time ago that my practice wouldn’t evolve if I sat on the sidelines,” he says. “I needed to speak up when the family’s future and its wealth were in jeopardy. Great wealth in families often comes with great dissonance.”
It’s important to have a relationship with the family, Douthat says, especially when its members aren’t communicating, when their unity is failing and when trust and joy are nonexistent.
About 70% of inherited wealth is diluted and destroyed after a few generations, he says. Communication is one problem. Another is the differing expectations different generations might have about their wealth. He explains that complex investment strategies may alienate younger generations, who cannot sustain the wealth and the legacy. He encourages the younger family members to learn about their financial resources and be a catalyst for change.
“A lot of time and money was spent to prepare the estate for the heirs, but no attention was paid to prepare the heirs,” Douthat says.
He adds that younger generations are often interested in things like taking care of the environment and using investments to align with their values.
Amy Castoro, a family coach in San Clemente, Calif., and co-author of "Bridging Generations: Transitioning Family Wealth and Values for a Sustainable Legacy," says family discord over inheritance planning often occurs before the family can build a solid foundation. She advises families to share stories involving all of the generations before talking about money.
“Almost every family would rather talk about anything rather than the estate,” she says. Families, thus, must “reach alignment and have important conversations to build trust to produce an outcome that is positive.”
Families can create a sustainable mission by creating private foundations and producing ways to work together in the world by putting together an estate structure that benefits the family and the foundation, Castoro says.