Avoiding wars that can break out among heirs in wealthy families when assets have to be divided comes down to personalities more than assets, according to Karen Harding, partner and team leader of NEPC’s Private Wealth Group, an investment consultant, private wealth advisor and outsourced chief investment advisor based in Boston.
And it is the experience of the financial advisor and the team he or she gathers together that can play a crucial role in solving those “heir wars,” Harding said in an interview.
“It is almost a mentorship program for new advisors,” who can learn from those who have been through these situations before, Harding said. “And, yet, each family and situation is different.”
If the members of a family are committed to treating each other fairly, the problems will iron themselves out with the guidance of a good advisor and a team of accounts, lawyers and others the advisor gathers to help, she said.
Harding has spent much of her career assisting families with significant wealth to untangle their affairs when the patriarch or matriarch dies.
She recently advised a family when it came time to divide the family fortune that involved investments and a sizeable art collection. In this and other such situations, where intangible assets make up a sizable portion of the wealth, one or more appraisers should be brought in to determine the worth of the art collection or other intangible asset, she said.
“The worst situation is when one or more of the children do not get what they thought they were going to receive, or they disagree on the value intangible assets,” she said. “A lot of these problems can be avoided through preplanning, and if the wealth creator makes his or her wishes known.” The advisor should facilitate this process ahead of time with the advice of lawyers others on the team, she added.
“Open communication between family members is a key,” Harding said. “Without that, there can be problems.”
In the case of the family with the art collection, decisions were made ahead of time about which of the three children would receive what portions of the art collection and how much it was worth. The advisor has to know problems can arise when an heir disagrees with the appraisal that is given, or if heirs disagree about selling or breaking up a collection, she said.
“These are complex situations and points of contention can always come as surprises,” Harding said. If discussions are held before decisions have to be made, the situations are easier to deal with. “Wealthy family’s affairs can create sticky situations, but it helps to work with third parties” that do not have a stake in the outcome.
In another situation, Harding was dealing with a family where the patriarch died suddenly in a bicycle accident before any plans were made for how to pass the family business, which made up the bulk of the family assets, to the two sons.
In that case, the sons had different skill sets and personalities, so it was easier to work out the details of who should take over the business and what role each should play, she said. The mother was the final decision maker.
“But it is a different story for every family and the advisor with more experience can better handle varied situations,” she said.