We’ve all seen movies where a person of means passes away, leaving their loved ones to wonder what, if anything, they will inherit. There is the nail-biting reading of the will scene, where one child is shocked to learn they have been disinherited “for reasons known to them,” or offspring no one knew about shows up to claim control of the company and the lion’s share of the estate. A battle ensues, pitting sibling against sibling and ending in estrangement and, inevitably, a mountain of legal fees. While this may seem like the stuff of Hollywood drama, the truth is that even the closest real-life families have been torn apart by money. Here are some factors that may cause problems among your heirs and ways you can avoid them with succession planning.
Transparency, transparency, transparency. The first step is to create a clear financial picture to present to your children. If you’ve been diligent about your wealth management, this should be very easy to produce. It includes a detailed inventory of your holdings, from financial instruments to your great-grandfather’s rare stamp collection, as well as your clear intentions for specific bequests. You also want to make sure your children are aware of other beneficiaries such as friends, relatives or philanthropies, and what you plan to leave them. A child’s lack of interest in the family finances is not a reason to exclude them from the planning process. Remember, a surefire way to turn apathy to rancor is to leave someone in the dark.
Store this information in one place and make sure everyone has ongoing access – be it through a folder of Excel sheets shared on Google Drive or a lifestyle management solution. You should also provide them with the contact information for your advisors so they can reach out to them with any questions.
Transparency is a two-way street. Your adult children may not be in the same position financially, and their individual circumstances will likely affect how they want to handle your estate. For example, one may be in a position to hold onto a home until it’s a good time to sell, while another may be in immediate need of cash. Or, they may want to sell an asset you would prefer to keep in the family. Have family meetings so you can hear their thoughts and, whenever possible, create workarounds that are fair to everyone while honoring your wishes.
Special circumstances. Unfortunately, there are times when it is prudent, even necessary, to treat one child differently from the others. The most common example is someone dealing with a drug, alcohol, gambling, or spending addiction – all of which can be a significant drain on even the most substantial resources. There is the money spent on the addiction itself, as well as the costs of rehab, ongoing therapy, and even legal fees. Setting up a trust fund will allow you to protect your money while ensuring their needs are taken care of. Be sure to explain this to your child so they understand that this is not punitive, but in the best interests of the family.
It’s not just about the money. While you might be looking at your succession plan purely as a way to take care of your family and ensure the survival of your legacy, for your children it can trigger longstanding emotional wounds and rivalries even they are unaware of.
This is one time when it may be helpful to speak to your children separately. Having frank one-on-one conversations may reveal what inheriting means to them, as well as any feelings they have about inequities – real or perceived – within the family. You might learn, for example, that your oldest child longed for more of your attention while you were busy building your company, and is resentful of younger siblings who came along when you had more time to spend with them. Or, you might be surprised to learn that a particular asset has sentimental value for them and adjust your bequests accordingly. Whatever your unique family dynamics are, talking it out can help you spot potential succession planning landmines, and possibly heal your relationships as well.