People often think of a recipient of sudden windfall as someone like those that won the huge jackpots from the Powerball and Mega Millions last month; however, most sudden windfalls do not come from lotteries or gambling and are not huge sums. Most recipients are talented people that have not had experience managing large assets, and suddenly have assets from an inheritance, insurance settlements, lump sum distribution of retirement benefits, or the sale of a business or investment real estate.
The number of sudden windfall recipients from inheritances will rise in the coming years. The “Great Wealth Transfer” refers to the generational shift of wealth that’s going to be coming over the next 20 to 30 years. This isn’t millions or billions of dollars, but by trillions of dollars that will need to be transferred to millions of heirs.
Many who never received an inheritance are in a position to bequeath one, without any experience of what could be done to prepare the recipients. It is by no means obvious, or self-explanatory.
Preparing your children or grandchildren for managing their inheritance can be done with a family meeting. This meeting formalizes the experience to remove the awkwardness and can address different issues based on your family’s situation. It doesn’t have to be as hard as you might imagine.
What is the “Money Talk”?
There are many times that having a money management talk can be helpful, not just to discuss estate planning, depending on family dynamics and what challenges are coming up.
The first “money talk” most parents have with their kids is teaching lessons about the value of assets and liabilities, such as: the danger of credit card debt, how money can work for you to create passive returns, understanding the value of delayed gratification, and being able to balance expenditures with income by understanding the difference between needs and wants.
One might think if they’ve done that, the job is done. There are still large issues to address, especially if the family has unique assets that will be passed on such as a family business. The bigger “money talk” is about creating a framework for future management of an inheritance, ensuring that mechanisms are available for managing wealth, and having resources that can continuously help with that goal, such as a trust or wealth management officer.
What does a family meeting address?
First and foremost – a family meeting lets children and grandchildren know what may be in their future. If the inheritance could be substantial, they should have a plan for it. That may mean that there will be someone they can continue to work with on that plan once the current manager of family wealth isn’t around to do so. The meeting may serve as an introduction to those that are currently assisting the family, such as the estate planning attorney and trust or wealth management officer. Regardless of whether the next generation chooses to stay with these advisors, knowing who they are and how to contact them will create an easier transition.
Second – the meeting defines roles and priorities. Are the assets going to be managed externally or internally, by multiple parties or a single party? Questions can be expected and addressed during the meeting such as:
Will any beneficiaries want a full inheritance immediately, or object to having a single trust to continue to manage the assets?
Will any children object to the costs of management? If a family member will be in charge, what compensation is appropriate?
Will there be any objections to an unequal division of assets? There are many valid reasons for such a treatment but managing perception can help avoid conflict later. Perhaps some beneficiaries received more support during life, or have a greater need, such as a special needs grandchild. Perhaps there is a desire to move a family business fully into the hands of the child with an active role, excluding other children to reduce conflict, but providing them with a larger portion of the liquid assets of the estate.
Will a portion or all the estate be put toward philanthropic goals, and should that be expressed ahead of time to alleviate any confusion? Charitable giving is not choosing those goals over the children, but rather recognizing that there is greater need and that the children are already successful enough not to need more.
Some of these topics may seem difficult to bring up. A trust officer, such as those at Arvest Wealth Management, can help make the meeting feel more natural. The formalization of a meeting allows a sense that these aren’t unusual issues and helps walk through them one at a time so questions can be answered in a positive way. Often, overlooked questions in estate planning may come up that have to do with sentimental value items, or even who will become the new caretakers of pets.
If family members are going to be designated to manage assets, they should be brought up to speed on what fiduciary duties are, how much time and expertise they may require, and the value of having an impartial third party involved in decisions that may be not always be popular.
Sometimes, a family meeting is more about informing beneficiaries on the upcoming plan, rather than involving them in a discussion of what the plan should be. That can still be very helpful, as each family meeting provides an opportunity to have additional questions come up and be addressed when the answers are easier to come by and arguments harder to maintain. It can be about sharing the information or coming up with a plan together. Either way, it may be time to go ahead and have the “money talk”, and a trust officer can review issues ahead of your meeting and lead the conversation as much as you feel is appropriate.