While Susan sat in
the waiting room to meet with her parents’ financial advisors, she was nervous,
excited, sad, curious, overwhelmed, and anxious, all at the same time. She knew these guys had worked with her
parents for a very long time; Mom and Dad spoke very highly of them, but she
had never met them in person. Neither
had her brother or sister.
Receiving the call
that her father had passed away, just four months after losing her Mom, had
come as a pretty big shock. He had
seemed so healthy, so vibrant, so alive just a month ago, and now he was
gone. When she was informed that she had
been selected as the successor trustee of the estate, the person that would
have to “handle all of the affairs,” she became even more overwhelmed. She knew Mom and Dad had done pretty well in
their years, saved well, planned, invested, even owned a few properties. But she had no idea where to begin to get
everything figured out and finalized.
Both her brother
and sister had been a little surprised when they found that Susan had been
selected to manage the estate. In fact,
they didn’t just seemed surprised; they seemed a little skeptical. Susan had been the one to care for Mom in her
final year. What did she know that they
didn’t? Had she had some input in
determining who would get what? Did she
encourage Mom and Dad to put her in charge so she could be in control?
As Susan waited to
meet with these unknown financial people, her nerves began to kick in. Would she even know what they were talking
about? Should she trust them? Would they
be able to answer the flood of questions that filled her mind every night as she
lay awake in bed?
While Susan
couldn’t anticipate what would happen in the next two hours meeting with her
parent’s financial advisors, she had zero clue what would happen in the coming
months as she attempted to settle her parent’s estate. She had no idea of the complexity in
understanding the legal documents that defined what she could and couldn’t
do. She had no idea what she would do
with the funds she would inherit. But
most importantly, she was completely unaware of the strain that would be placed
on her relationships with her brother and sister.
Even though they
had always gotten along well, over the coming months, making financial
decisions together, discussing who would get which assets and personal
possessions, what was fair, what would be kept, what would be sold, what would
Mom and Dad have wanted – every one of these decisions seemed to end in
disagreement. In the coming months,
their relationships would fracture in ways that would become irreparable. In the coming years, each of them would have
challenges maintaining the wealth they had inherited.
Susan and her
family were not a rare unfortunate situation.
They were just like 90% of the families in the world. When wealth transfers from one generation to
the next, the odds of failure of maintaining the wealth, and the probability
that family relationships will fracture, are astounding. If you’re losing sleep when your portfolio
declines by 9%, try considering addressing the 70-90% risk that could deplete
by 100%! To make it a little worse, while
the loss of assets is certainly disappointing, the destruction of relationships
is tragedy. Siblings no longer talk to
each other, in-laws become out-laws, and attorneys seem to end up benefiting
the most.
What’s interesting
is that we all know this happens. If
this hasn’t happened in our own family, we know someone who has had a negative
experience with an inheritance. The
money was squandered, the kids now hate each other. We don’t think this is possible with our
family, but not only is it possible; it’s likely.
Even more
interesting is that we do nothing effective to solve this issue. The problem here is that when asked, most
families think the cause of the fracture will be bad investment decisions, a
flawed or non-existent trust or estate plan, economic downturn, taxes, or a
myriad of other technical or planning breakdowns. Examining the characteristics of families
that have failed in transfer, and those that have been successful, it’s quickly
learned that these are rarely the issue.
In fact, in a study of 3,250 families over several generations, less than
5% of the time was the family failure attributed to poor estate planning,
taxes, or any of the other technical solutions that we all focus on. That doesn’t mean we shouldn’t address those
aspects of our plan, in fact one could argue that it means that most legal and
financial advisors do a pretty good job of preparing our assets for
transfer. However, here’s the rub – the problem isn’t the positioning of your
assets; it’s the preparation of your heirs.
What are you doing
to prepare your heirs for the decisions they’ll face? How often are they making joint financial decisions where they share in the benefits or
consequences of the outcomes? Do your
heirs have a shared purpose or vision of the future that will help them get
through challenging situations? Would
they know how to evaluate and select qualified advisors? Can they communicate effectively in
emotionally charged situations (like when Mom and Dad die)? Has your plan, and the reason for your
decisions been communicated to them?
Overcoming the
issues associated with the transfer of wealth is not rocket science. Many solutions are very simple and can be
implemented by a family on their own.
Others require facilitation or coordination. Regardless of how you approach or solve the
issues, addressing them and getting started will make the world of
difference. For families looking to
protect your hard work and earned wealth, seek understanding of the risks that
you face. Evaluate with honesty your own
family situation. If a better outcome is
important to you, seek assistance from those that can help.
This article was originally written by Ryan Ponsford for TE Wealth, a financial advisory from in Canada that invited him to speak to their top clients throughout Vancouver, Calgary, Toronto, and Montreal.
Ryan Ponsford is the
Founder and Principal of Akili Capital, a firm that partners with families and
their advisors to provide financial confidence, peace of mind, and family
continuity over multiple generations. He is a
sought after speaker, thought provoker, and facilitator at events and family retreats
across the United States and Canada. Ryan can be reached by email at rponsford@akilicap.com
