Talking about death is usually an unpleasant experience, to say the least. But in the planning biz, it's inevitable. Two years ago, Mark Thompson took aside an elderly client — a widow with an estate worth around $700,000 — and gave her a warning: Call a family meeting with her three 40-something children to tell them how she planned to divide up the $200,000 of antiques and art works she owned upon her death. The children, Thompson could see, didn't get along. In fact, Thompson had a feeling that if she died before stipulating her desires about which child would inherit which antique or object d'arte, a major brawl for the boodle would break out among her children. “She was the glue of the family,” says Thompson, who is with Raymond James & Associates in Melbourne, Fla. But, the client declined to heed Thompson's suggestion, assuring him her progeny would know what to do upon her passing.
Sure enough, after she died, all hell broke loose. One daughter simply entered her mom's apartment and cleared out every piece there; then, later, she had her brother arrested for “breaking and entering,” Thompson says. And that was only the beginning of the family's disagreements. It got so hot that Thompson eventually had to walk away from the warring siblings. Thompson lost the opportunity to continue managing his deceased client's assets for the beneficiaries, and he also lost potential new assets from the surviving children, too.
Assets Left Behind
Holding onto clients' assets after their death isn't easy. In fact, about 95 percent of financial advisors lose the next generation after a client dies, according to Mark Colgan, president of Colgan Capital in Pittsford, N.Y., who specializes in issues related to legacy planning. The only effective way to do it is to establish a relationship with the clients' offspring. And, one key part of that effort is facilitating conversations between the generations about just what Mom and Dad are planning to do with their money when they pass on. That way, you get to show not only how smart your planning has been, but, also, just what an understanding person you are. More than that, holding those conversations provides a real and important service to the family: In the process, you'll also solidify your relationship with your aging clients.
Trouble is, these are delicate, and sometimes unpleasant, conversations. Clients may hesitate to hold the talks in the first place. Once you do get the family together, you're likely to have to deal with a variety of difficult interpersonal issues that become intertwined with parents' estate-planning decisions. That's especially true when more than one adult child is involved and sibling tensions come into play. “I've met very few Ozzies and Harriets,” says Frank Congemi, a Deerfield Beach., Fla., advisor specializing in financial gerontology. As a result, planning and holding these gatherings takes a lot of work: a mix of patience, diplomacy, persistence and, at times, a pretty thick skin.
The first move, of course, is broaching the subject with your clients. In many cases, that's not a problem: Some 70 percent of parents said they would like their adult children to get to know their advisor, and 72 percent said they would encourage their financial advisor to discuss wealth-transfer and estate-planning issues with their children, according to recent study conducted by Mainstay Investments, a division of New York Life Investment Management.
That still leaves a sizeable number of people who are uncomfortable with the prospect. Why? For one thing, there's the obvious: “It forces people to recognize their own mortality,” says Susan Hirshman, a managing director of J.P. Morgan Funds. But, other issues may arise, as well. For example, according to Hirshman, one common fear is that once the kids know just what they're getting, “they'll pull the plug the first chance they get.” Or, parents might not want to confront a problem adult child with, say, his excessive drinking and their concern that he couldn't handle an inheritance.
What to do? Often, it's easiest to suggest a meeting after an important event — the sale of a business, say, or a divorce. But, even if that doesn't happen, your best bet is to be direct: Lay out the possible misunderstandings that can result if you don't all talk, and provide examples of real-life disasters just to underscore the point. “You have to explain that doing nothing is, in itself, a decision,” says Hirshman. “And if you're not going to talk about it, then you're saying you're willing to let them fight it out when you're gone.” Then, ask probing questions to find out what the real problem is. If, for example, it turns out one client is afraid his children will rush to curtail necessary medical care to get their hands on their inheritance sooner, then make sure you put in place health care proxies and other legal protections to make sure that won't happen.
Once the family agrees to talk, you need to do serious planning. That means making sure you — and your clients — understand just what it is they want for their children and what the possible repercussions might be. “For most children, the big issue is fairness. And they will equate the level of fairness with the level of love,” says Anthony Rizzuto, senior branch manager with Ameriprise in New York. If, for example, clients intend to give one child the house and another cash, make them analyze just how the kids will feel about that division.
Rizzuto points to a husband and wife who wanted to leave an equal amount of money to each grandchild in addition to bequeathing money to their adult children. Rizzuto warned them that, in his experience, such disbursements tended to cause resentment among children — those with fewer offspring were likely to feel slighted. But the clients insisted on going through with their plan. Turned out, when they all got together with their three adult offspring, the ones with more children loved the idea and the others were outraged. The parents ended up changing their minds and leaving everything just to their own children.
You also have to make sure parents are ready to discuss “soft” issues, as well. That means anything from where they want their funerals to take place and where wills are kept to who gets jewelry or photo albums and other items of sentimental value. In fact, “It's the small stuff that tears families apart,” says Kenneth Hansen, senior vice president of DA Davidson & Co., in Salt Lake City. He suggests that parents ask their children to run what amounts to an auction after their death, in which individuals who want specific items bid money from their inheritance to buy the things they want. That money would then be put in a pot to be divided among the other siblings.
In some cases, you'll want a highly structured agenda; in others, something more informal. It all depends on the family dynamics. Rule of thumb: The more dysfunctional the family, the more highly structured the meeting should be.
Family dynamics will also determine just how involved you need to get in the actual proceedings. Of course, in any situation you have to be sensitive to the inherently uncomfortable nature of the discussion. But, in more easygoing families you can act as more of a resource. In other cases, you may have to run the show. That's also a good idea if the plan involves news that parents know their offspring won't like. “I often play the bad guy,” says Thompson. He recalls the couple who decided to write one of their two sons out of the will as long as he was married to his current wife, a woman they both distrusted. They asked Thompson to deliver the news. (Several years later, the son and his wife divorced and the parents rewrote their will).
Where to hold it? If most family members live in the area, you can have the gathering in your office. But, since it's likely that people are dispersed, another possibility is to try a family reunion. Rizzuto prefers to schedule something over dinner at a restaurant when everyone is in town for a holiday. “Getting together over a meal tends to create a better atmosphere,” he says.
Be prepared to see emotions bubble up when there is more than one child. Longstanding feelings that one sibling has received favorable treatment, for example, are likely to spill over if the individual who feels wronged also perceives his or her inheritance will also be comparatively inadequate. Plus, the more players there are, the greater the chances that one child will pose a special problem.
Thompson recalls a time when he set up a meeting for two clients and their two children, both in their late 40s. The issue: The son had a drug problem, and the parents wanted not only to make his sister co-trustee of his inheritance, but to insist that he undergo drug testing before receiving any money. On hearing the news, the son exploded and walked out in a huff. Three months later, Thompson got the family together again, and the son, who was considerably calmer, agreed to the plan.
While it doesn't happen often, the going may get rough enough to require stronger measures. Eric Brotman, president of Brotman Financial in Timonium, Md., points to a widow who, he quickly saw during a meeting, was under the thumb of one of her two daughters. Seemed the woman spent much of the time browbeating her mother, urging her to withdraw money from a qualified retirement plan to help pay for family expenses and to help her buy a car. Eventually, Brotman felt he had no choice: He asked the daughter to leave the room and had a brief heart-to-heart talk with his client. The woman ended up establishing a special trust for the daughter's own child, to protect her from her mother's possible abuse.
It's not always the children who cause the problems, either. You may also find that a domineering parent makes it impossible for the family to have any give and take. That's a delicate situation, since the individual is your client. But, you'll probably have to step in. John Nersesian, managing director of wealth-management services at Nuveen Investments, recalls an advisor who gathered a mother and her three adult children together to discuss the $20 million she received from the sale of a family business. She was so difficult — interrupting her children constantly — that the man had to draw her aside and, Nersesian says, “suggest that it would be more productive if everybody had the chance to participate.” After that, she loosened up.
Do's and Don'ts
Say a client recently died and you haven't met the children. How best to handle the situation so they're likely to retain your services? Here's a list of do's and don'ts:
- Immediately start talking numbers. The kids are likely to be shaken up and not too eager to discuss the nitty-gritty details. Instead, ask when they might feel ready to address these issues.
- Use the same financial approach you did with their parents. Chances are the kids won't want to take the same steps their folks did. In fact, it's quite likely they'll try to differentiate themselves from their Mom and Dad.
- Be aware you have to prove yourself the same way you would with any prospect. You may even have to try harder. “If anything, the children may feel that just because you worked with their parent doesn't mean they're going to like you, too,” says John Nersesian, managing director of wealth-management services at Nuveen Investments.
- Offer to be of help. That means doing anything from sending death certificates to the appropriate people to going along on a visit to the parents' attorney.
- Ask how they want to be contacted. Chances are, the children expect to use technology in their dealings with you more often than their parents did. “Show them you've embraced technology,” says Nersesian.