Just as in other aspects of business, conversation wins out in planning for the future.
The rather mundane topic of estate planning is having a moment right now in pop culture.
HBO’s hit series Succession and the critically acclaimed 2022 movie Knives Out are just two examples of our obsession with who gets what as someone ages or after someone dies and how it can all go horribly wrong. Owning a business complicates matters. Who will take over? Who inherits the business? Are the plans clear and locked down?
It’s no wonder that estate planning has become such a source of inspiration for Hollywood at this moment in our country’s history. As the Baby Boomer generation ages, an estimated $72.6 trillion is expected to change hands in the next two decades. Many of you reading this will be involved in the giving or the receiving end.
With so many assets moving around, there are almost endless pitfalls for families to navigate. And, while entertainment requires unpredictable conflict, the best estate planning is uneventful.
So how can families avoid a Roy-like struggle for property and power?
The answer is simple: Talk early and talk often.
The research shows…communication matters
With estate and transition planning, most people think of minimizing taxes and avoiding probate.
As someone in the trust and wealth management business, I can confirm that these are indeed both important elements of successful planning.
But research reported in the 2003 book Preparing Heirs by Roy Williams and Vic Preisser has shown that less than 2 percent of estate plan failures occur because too much tax was paid or the estate went through probate. That same book attributes 60 percent of transition failures to a breakdown of communication and trust within the family.
Open communication cultivates an environment where family members feel secure in sharing their thoughts and concerns. This trust is foundational for fostering a sense of unity and shared responsibility.
Business owners can’t wait as long as others to start the conversation, because there’s too much at stake.
Many entrepreneurs suffer from “Superman Syndrome.” Success makes them feel as if they will be able to dictate the terms of their departure. But if there is a sudden turn in health, it may be too late to deal with these matters.
Start the conversations early while you’re in good health. If your heirs want to transition into the business, make sure they have time to learn how to run it, even when you’re not yet ready to let go. On the other hand, you also need to understand that your heirs may not want to join the family business and would prefer to sell or close shop.
Be transparent
Few people enjoy talking about money.
So, embarking on discussions about wealth and inheritance requires careful consideration and thoughtful planning.
Timing is key. Ideally, matriarchs and patriarchs should initiate these conversations when they are still healthy, and they should do so during moments when everyone’s emotions are relatively stable, steering clear of times marked by heightened stress or emotional tension.
Heads-of-family should provide a comprehensive overview of the family’s financial and business landscape and set the stage for informed decision-making.
Transparency is key, and the conversation should include:
- Details about the family’s financial portfolio.
- A thorough discussion of assets, investments, and debts.
- Information about where important account information and documentation is stored, including usernames and passwords.
- Family values and financial aspirations (What purpose will the wealth serve?).
- Business transition plans.
- Contingency plans for how to transition the business should someone unexpectedly become incapacitated.
- Business appraisal or plans for appraisal.
Acknowledge the potential for varying expectations among family members regarding inheritances and transition planning. Openly discuss any perceived inequalities and work towards a mutual understanding of the family’s distribution philosophy.
A lack of transparency will not only fracture family relationships, but it can also put your business at great risk.
When the going gets tough, bring in a pro
When things get tense, involving professional facilitators can be instrumental in navigating sensitive conversations with expertise and impartiality.
Financial planners and family therapists bring a wealth of experience to the table, offering insights into both the financial and emotional aspects of estate planning and transition periods. Working together, their expertise can guide discussions toward constructive outcomes.
Family therapists, in particular, specialize in addressing emotional dynamics within families. They can help navigate any underlying tensions or unresolved issues that may surface during discussions about wealth, inheritance, and the family business.
Including financial planners or family therapists in family meetings ensures that conversations are led by individuals with a deep understanding of both financial intricacies and interpersonal relationships.
Keep it going
Designate specific times for regular family meetings, creating a routine for open discussions. Regular meetings provide opportunities to address new developments, share updates, and reinforce the family’s shared vision.
Recognize that circumstances change. Encourage an attitude of flexibility, where adjustments can be made to plans based on evolving needs.
Acknowledge significant life events such as marriages, births, or career changes, as they may impact the family’s financial landscape and business dynamics. Discuss how these events influence the estate plan, the family business, and wealth distribution.
Continuous communication fosters a culture of openness, adaptability, and shared responsibility within the family. By embracing regular, consistent conversations, families can navigate the ever-changing landscape of wealth and inheritance with unity.
We can all play a role in smoothing out planning. If you are planning your estate or a business transition, don’t forget to talk to your heirs. If you are an heir and your parents are guarded about their plans, find a delicate way to suggest a conversation. And if you are a financial professional, you have an obligation to stress how important communication is among family members.
Life doesn’t have to imitate art. Leave the cutthroat conflicts to screenwriters. Let’s all commit to having the type of open and honest dialogues that foster a legacy of love, stability, and perseverance.