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 age of family members or the family’s economic or social status, it’s difficult for most families to talk about money.
A Failure to Communicate
It’s 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 experience, 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’s 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.
Unprecedented Wealth Transfer
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 over 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’s 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. Bottom Line: 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’ll 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’s likely they are assessing the financial impact of their options.
If a client is getting married 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’s vital to figure out how he’ll 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 her family member is diagnosed with a serious illness requiring long-term care, he’ll 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 effect 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 reevaluating 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 plans to prepare her heirs and plan for a successful estate transfer, she’ll 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.
As their attorney, you’re probably already involved in their estate planning and serious efforts around preparing their heirs or transferring the family business. You may also be counseling them about the financial and legal impact of the myriad of other life stages while encouraging them to have the all-important money talks. Prompting your clients to have these conversations about all of these transitions doesn’t mean you need to add family therapist to your title or skill set (although many of you may feel that is the role you typically play). But you’ll be serving your clients well if you actively encourage them to have the money talks and offer all the support you can. 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.
Whether they give voice to the desire, 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 attorney who helps her clients avoid or overcome anxiety and conflict will strengthen and deepen the attorney/client bond. And by participating in some role in money talks, an attorney may extend that bond to subsequent generations.