Tips for Family Wealth Transfers

Money conversations between parents and adult children are difficult at best. Issues such as investments, retirement planning, estate planning wishes, and elder care are never easy. "Intra-Family Generational Finance Study," a study by Fidelity Investments, highlights some of the key issues involved.

A lack of communication and planning can be costly to the family in terms of taxes and other issues involving transferring parent’s wealth to the next generation and making sure they are cared for properly in old age. While this might sound like it only pertains to the very wealthy, that's not quite the case. (For more insight, you might investigate estate planning tips for financial advisors.)

Family money conversations are important and a trusted financial advisor can be a help in facilitating and moderating these family discussions as well as in guiding them through the entire estate planning process.

Fidelity's study suggests four key ground rules to having successful family money discussions:

• Initiate family discussions early.
• Don’t be shy about bringing up detailed questions.
• Let parents have the final say about their finances and care.
• Have follow-up conversations.

This acronym from Fidelity stands for Priorities, Readiness, Estate Plan and Papers. The PREP approach can help everyone be prepared for meaningful and productive family money conversations about nearing retirement.

This is about fully understanding the parent’s goals and objectives for retirement. Parents should have an idea of what they want out of retirement, a vision for their lives. Children should be prepared to discuss any concerns about these plans. If the parents, for example, are planning to retire abroad how will the family get together and who will care for them in the event of serious illness?

This entails knowledge of the parent’s financial situation. Parents should have a handle on all sources of retirement income, an estimate of the expenses associated with their lifestyle and details of how they will handle retirement healthcare expenses. Children should help parents test drive their plan to see if it's feasible because leaving an inheritance to children can be easier said than done.

This is about having the parent’s estate planning documents in order and up to date. Parents should make decisions about their care in the event they become incapacitated. Who would care for them? Who would have powers of attorney over their assets? Who is the executor or trustee of their estate in the event of their death? From the children’s point of view, they might suggest that the best family member handles each of these tasks. Factors might include physical proximity to their parents and who is best in dealing with money issues.

It is important that everyone knows where key documents and papers are located. Parents should make a list of their key documents and papers and where they are located. Children can help their parents determine what documents are in place and which may need updating or creation.

Financial advisors can help clients plan for intra-generational wealth transfers in a number of ways. Adult children may have questions about how to approach the topic with parents if their family is not in the habit of having open family money discussions. A financial advisor can help them understand the issues involved and some of the questions to ask. They might also suggest some icebreakers to help the children open these difficult discussions with their parents or other older relatives.

For parents, a financial advisor can be a great sounding board for their ideas about wealth transfer. Who do they want their money to benefit? Do any of their children have special needs that must be addressed in terms of funding? What do the parents want out of retirement? What are their feelings about long-term care? Do they have long-term care insurance or have they made other provisions to deal with these expenses? An advisor can often suggest ideas and strategies the client might not have considered.

Additionally, most financial advisors will have relationships with estate planning attorneys and sources to obtain long-term care insurance if needed and can provide referrals to these vetted professionals, which can help greatly when planning for healthcare costs in retirement.

A financial advisor can also be the perfect person to help moderate and facilitate a family financial conversation. As a disinterested third party, they are detached from the emotional issues that are inherent in these types of conversations. As experienced financial professionals who have seen a number of different family situations, they can offer ideas that the parents and the family may not have considered.   

Lastly, most financial advisors have encountered adult children whose goals seem more about their own financial well being than that of their parents. At the end of the day, the wealth transfer discussion should be first and foremost about making sure that the parent’s or older relative’s needs and desires are met before worrying about the next generation. This includes their retirement goals and that proper care is provided for their later years. The advisor can help prevent the goals of seemingly greedy children from negatively impacting their parents, sometimes through a revocable living trust.

Family financial discussions are never easy, yet they can be vital to properly executing the parent’s wishes in terms of the eventual transfer of their wealth to the next generation. A financial advisor can help both generations through this difficult and emotional process in a number of ways.