Breaking the Silence: Helping Clients Discuss Estate Plans with their Families
By David Bokman, Chief Wealth Advisory Officer, GenSpring Family Offices

• View as a PDF file

While many talented wealth management professionals spend an extraordinary amount of time and effort designing elegant, tax-efficient estate plans, they often fail to assist clients with the sensitive task of discussing the plans with the clients' families. As a result, plans often create unintended negative consequences. This article explores the reasons for this phenomenon, and suggests how to best seize the opportunity to better serve clients.

"Shirtsleeves to Shirtsleeves in Three Generations"

Common experience suggests that most families fail to sustain wealth across multiple generations. An almost universal proverb reminds us that the third generation of a wealthy family is ill-advised to rest on its ancestors' laurels: in Italy, the expression is "from the stable to the stars and back again" and in China it is "from peasant shoes to peasant shoes in three generations." Empirical research helps us understand the underlying reasons. One study of 3,500 families found that 70% failed to sustain wealth across generations. Interestingly, the study concluded that errors in financial planning or taxes accounted for less than 3% of the failures. By contrast, 60% of the failures were found to result from lack of communication and trust in the family and 25% from "unprepared heirs" (R.O. Williams and V. Preisser, Preparing Heirs: Five Steps to a Successful Transition of Family Wealth and Values). This is often surprising to wealth management professionals who devote their careers to designing technically elegant estate plans. But it can be viewed as an opportunity to serve clients more broadly, while deepening the advisory relationships with them.

Our research on the "25 Best Practices of Successful Families" is consistent with both the earthy proverbs and empirical research cited above. In surveying the best practices in the accompanying box, it is immediately obvious that many of them involve intra-family communication. Under the category of Trusts and Estates, the discipline of "communicating intentions" is a powerful best practice.

Fear and Worry

So, if the stakes are so high, why is communication so difficult for wealthy families? The answer, most often, is fear. Clients worry that children informed of the estate plan will feel "entitled" to the wealth, become spoiled, unmotivated and isolated by envious peers. They worry that children might tell outsiders who will exploit the knowledge to harm the family, or that disclosure will trigger conflict, such as sibling rivalry, years before the estate plan is even relevant. Clients also worry that disclosure today will limit their flexibility if they want to make changes in the future.

These fears are not entirely unfounded. Every estate planning attorney can relate horror stories involving children with knowledge of an estate plan who try to declare a client incompetent before he or she can change the estate plan (for example, to favor charity) or make even more dastardly attempts to accelerate their inheritance. But such stories can be countered with equally chilling tales in which a second spouse manipulates or exploits a client to the detriment of uninformed children from a prior marriage. The point is not to compare horror stories, but rather to take note of the more common, non-sensational ways in which clients' bias to under-communicate their estate planning intentions can create lasting problems.

Lost Poets and Disappointing Lotteries

In our experience, these more routine failures take two very different but equally troubling forms. The first arises when failure to communicate leaves highly responsible children with an inadequate understanding of their parent's desire that the family's wealth be used to make life more comfortable for them than it was for the parents. The client in this case might be someone sympathetic to John Quincy Adams' famous quote: "I must study politics and war, that our sons may have liberty to study . . . commerce and agriculture, in order to give their children a right to study . . . poetry." A client who fails to clearly express this intention allows each generation to under-estimate its ancestors' generosity and repeat unnecessarily its hardships.

On the other hand, some clients are determined that children not use the parents' wealth as a justification for their own laziness. Such clients are often surprised by the extent to which uninformed children can over-estimate the extent of the family's wealth, or the parents' desires to facilitate and subsidize their study of poetry. In these cases, disclosure can be a reality-check for children who are waiting for an inheritance as a kind of lottery which never quite materializes.

Discomfort with Wealth—"Born on Third Base and Thinks He Hit A Triple"

An entirely separate problem caused by failure to disclose estate planning intentions is the perpetuation of feelings of embarrassment and discomfort with one's wealth. Under-communication reinforces negative messages that children receive from the earliest ages about the family's wealth. These messages are offered by less fortunate peers, extended family (such as a jealous uncle), and even politicians and the media (consider, for example, how wealthy people are often caricatured in the movies). Our own work with wealthy families often reveals surprising distortions about wealth which only a healthy, candid dialogue over many years can correct. One commentator notes that without open communication about the social and emotional implications of having wealth, inheritors can feel "ashamed of receiving handed-down wealth, guilty because they had so much and inadequate when compared to the people in the family who made the fortune" (J.H. O'Neill, The Golden Ghetto: The Psychology of Affluence). Parents' secrecy about the family's wealth can also leave children with the impression that the parents don't trust them, which can do lasting damage to their self esteem.