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Family Fortune Feuds

What can a rep do about disagreements over the distribution of a client's wealth to family members?

The Pritzker family knows too well: the bigger the fortune, the bigger the headaches. The distribution of the family's estimated $15 billion fortune is under heavy dispute from a pair of its youngest members, Liesel, a 19-year-old actress (she played Harrison Ford's daughter in the movie Air Force One) and her 21-year old brother, Matthew. The two contend their trust funds were mismanaged, and they seek a $1 billion award, plus $5 billion in punitive damages. Robert Pritzker — Liesel and Matthew's father — contends the funds were managed in an appropriate manner and “he still hopes to reconcile with his children,” according to an Associated Press report.

When a family fortune comes under such rancorous dispute, everyone loses — including the family's advisor, who often sees the assets he manages shrink or disappear altogether when the family argues over money.

Whether clients are wealthy or “merely” affluent, financial advisors can help ward off such disasters. The first thing an advisor must do is learn the personal dynamics of the family — the better to help him understand where potential conflicts might lie.

Understanding Family Dynamics

This is not an easy task, says Thayer Willis, a psychotherapist in Lake Oswego, Ore., and author of Navigating the Dark Side of Wealth (Equine Graphics Publishing, $25.00). Family relationships are complex to begin with. “When you add wealth,” Willis says, “the dynamics are exaggerated.” She ought to know: She is heir to the Georgia-Pacific fortune.

Richard Hearn, president of Starcare in Newport Beach, Calif., an affiliate of LPL Financial Services, says becoming intimate with those dynamics is worth the effort. The first step is to get a bead on a family's unique “energy,” Hearn says. Though this may sound like some amorphous, New Age approach, it is anything but. The energy will usually reveal itself in routine client/advisor conversations, and once an advisor understands it, he can sense changes that might threaten the stability of an estate. “Members talk about one another: ‘My daughter married outside the faith; my son has a drug problem,’” Hearn says. Or they may start doing things that set off alarm bells, such as “asking for private meetings with you,” he adds.

Before things fracture to that point, Hearn and others believe in assembling the involved parties together for an expository meeting. The idea is to identify potential problems before an estate's moment of truth — distribution of the money — arrives.

Early in this process, the advisor needs to establish himself as the main coordinator of the family's financial affairs. Though lawyers and accountants are certain to be involved, “the family needs one trusted advisor to coordinate and integrate,” says Steven Lichtenstein, a Forest Hills, N.Y.-based financial advisor affiliated with Park Avenue Securities. His practice concentrates on pension and estate planning for small- to medium-sized corporations and their owners.

If the emotional issues are too heady, bring in a consultant with psychological training. “You may find yourself stepping on land mines that were planted years ago,” warns Jerry Kleiman, a clinical psychologist and cofounder of Optimal Resolutions in Manhasset, N.Y., a company specializing in the psychodynamics of family business. Although he says problems are often rooted in past tragedies and traumas, Kleiman believes in focusing on the present rather than on events of childhood.

Keeping the Peace

Conflict is often the direct result of poorly planned estates. Parents who establish wills with little guidance or input from the heirs might have unwittingly “sentenced their children never to speak,” says Lichtenstein. “Or they may be potentially disinheriting them.” Kleiman notes, too, that parents can benefit from their adult childrens' suggestions and their solutions to problems. Advisors who manage the estate-building process show families how different returns scenarios might play out and suggest alternatives if the clients do not like what they see.

Joe Kopczynski, president of Universal Advisory Services Inc., a family office in Albuquerque, tells of a case in which early intervention from the advisor might have paid off: a mother dies after naming the five children co-trustees of her estate. Since none of the five has any experience managing money, the father decides to step in. However, only four of the five siblings agree to the father's involvement. The family ends up in court fighting over something that might have been averted with better planning.

“It makes sense to have a third-party trustee, and to craft a trust document that doesn't put siblings at odds with each other,” says Kopczynski. In advocating for an independent trustee, he warns his clients that putting one sibling in charge is usually asking for trouble. “I ask the client, which would you rather have — all the siblings mad at the trustee or mad at each other?” Ideally, of course, no one is angry because the trust has been carefully drawn up and the trustee understands its intent.

Although duty bound to the client's wishes regarding the estate, the advisor has a vested interest in seeing that the heirs are fairly represented in the process. You need to see all sides and, if possible, help the various parties understand each other's viewpoints as well. “Sometimes parents need to see that the son who is a surfer in La Jolla is as deserving as the one who is a physician in New York,” says Kleiman, who has seen parents struggle over what's fair versus what's equal in dividing up their estates.

It should come as no surprise that some heirs want access to funds now and not just later. Certain estate planning vehicles used to minimize estate and gift tax obligations, such as family limited partnerships (FLP), let parents transfer assets while still alive. These vehicles can hold various types of assets including investment portfolios and real estate, and they protect the assets from divorce settlements, lawsuits, etc. As special business partners, heirs can use funds from their inheritances immediately. However, they have no control over the assets of the partnership.

Such a solution does not work well for heirs who want some decision-making power in the family business or in managing the family assets while one or both parents are alive. It behooves the advisor to know the preferences of all concerned, and to work with an attorney in finding a solution that best satisfies the whole family.

An attorney is necessary, too, in creating a special needs trust, which allows an heir with physical or psychological disabilities to hold estate assets without having them count toward calculations for need-based government benefits. Since such trusts are complex and the requirements for them vary by state (and, in some cases, by county), advisors should work with an attorney specializing in this area.

Clients sometimes leave their spouses or their children in the dark about the estate planning they have — or have not — done, leaving the benefactors in the awkward position of initiating a discussion of their parents' demise. Mortality is always a tough topic, and it's even tougher for anyone who stands to gain by it.

An astute financial advisor can help get the dialogue going in client meetings and other ways, too. Tom Bray, president of the Legacy Companies, which include financial services and a separate trust company, in Overland Park, Kan., launched workshops where baby-boomer clients bring their parents to learn about estate planning and other financial issues of aging, such as long-term care insurance. The workshops bring the attention of older family members to these delicate matters in a neutral setting, where no one reveals personal information and the heirs are perceived as caring rather than greedy.

Candace Bahr, an independent financial planner in Carlsbad, Calif., affiliated with LPL Financial Services, received a copy of a “love letter” a client wrote to her aging mother, inviting the older woman to discuss her health needs as well as the dispensation of assets and belongs. Bahr was so impressed with the letter she shared it with other clients.

In the end, one of the hardest battles facing advisors is to keep client expectations about an estate realistic. This task can be particularly onerous in complex familial situations, because the estate can quickly get spread too thinly to be of much use to anyone. Say, for instance, a mature man wants to provide for his younger wife during her lifetime while also leaving an inheritance to his children. A traditional trust would allow the widow to draw the income from the estate, leaving the principal intact for the children.

However, if half of such a trust were invested for income and half for growth, even if it were funded with $1 million, the wife would only receive the interest of, say $50,000 per year — hardly the sort of money a millionaire's wife would expect to live on.

Stephen Silverberg, elder law and estate attorney with Certilman Balin in East Meadow, N.Y., says that a careful look at a clients' situation may reveal that the assets are insufficient to provide for both the spouse and all the offspring. Such a meeting would require some hard decisions, but, as with most choices, these are better made up-front when the wishes of both the client and his heirs can be taken into account. For though only a handful of clients might have the money of the famous Pritzkers, their brand of family feuding is, sadly, all too common.

Ruth Halcomb is a former financial advisor who has contributed to Registered Rep. since 1994. She currently manages a Web site for expatriots from her home in Santa Fe.

The Women Left Behind

The good news is that we're all living longer. The bad news is that women, who live longer than men, are increasingly likely to outlive whatever assets they have. Half of all women over 65 outlive their spouses by 15 years or more, and a large percentage of widows (80 percent, by some estimates) end up living in poverty, says Candace Bahr, an independent financial planner in Carlsbad, Calif., affiliated with LPL Financial Services. (Statistics are from a presentation by Pimco, US Census Bureau and Professional Women's Foundation, 1996.)

Bahr is concerned about the lack of financial education for women and the late-life poverty that can result. She appreciates that few reps and financial planners want to spend the time necessary to educate women on financial matters (though, some say, seminars can be a good way to drum up business).

So, she and her colleague, financial planner Ginita Wall, founded a non-profit organization called Women's Institute for Financial Education. The Institute (which operates under the acronym WIFE) organizes Money Clubs to give women a venue and structure for taking control of their financial futures.

“Women learn well collaboratively. Women hold each other accountable,” says Bahr. The clubs help their participants deal with issues like managing debt, establishing college savings plans for their kids and, of course, making sure their retirement savings plans are realistic.

The women want to know “how to approach husbands and fathers who've been holding the purse strings,” Bahr says, and the Money Clubs help them to do that.

The Money Clubs feature free educational material covering 31 financial topics. Bahr says there currently are 43 individual clubs, she hopes to have one in every state for the official launch in September, and her ultimate goal is to hit one million members. “We are on a mission to empower women to take control of their financial lives. As we tell them, “It's not just your money, it's your life!”

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