5 Steps for Successful Family Wealth Planning

Posted by Rose Watson, JD, MSEL

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January 17, 2017 at 10:00 AM

steps for successful family wealth planningFamily wealth planning isn’t just about helping one generation build as much wealth as possible to pass on to the next generation. An effective process also helps prepare heirs to manage and preserve those assets into the future. But how can you help your clients address all of these matters in an intelligent way? Our five steps for successful family wealth planning can help.

Step 1: Start with Relationship Building

Relationships are where the rubber meets the road in intergenerational planning. Indeed, they are the fundamental building block of a successful wealth transfer plan. Helping your clients build trust and accountability among family members is key to preventing wealth loss from one generation to the next. Your clients’ children, great-grandchildren, and other heirs need to understand the importance of family wealth, feel secure in the chosen strategy, and be prepared to take on responsibility to ensure the plan’s success. Discussing the following questions may help your clients take stock of family relationships and offer insights into ways they can strengthen them moving forward. 

  • Who participates in important discussions regarding the family’s values and goals? Successful intergenerational planning involves different generations and considers different perspectives.
  • Who participates in the management of family assets? When they're ready, children or heirs should be groomed to take on these responsibilities.
  • Has your client communicated his or her intentions clearly, so that all family members understand their individual roles? Be sure that your client also gives his or her children the opportunity to make suggestions and carve out new roles if desired.
  • Has your client considered how to deliver plans that may not be in sync with the children’s expectations or goals? Addressing these issues early can help avoid conflicts later.

Step 2: Assess the Current Plan

It’s likely that many of your clients have “given some thought” to their wealth transition goals but haven’t nailed down the specifics. If so, the next step is to assess your client’s current plan. 

  • How much does the client want to leave to children or heirs, and what factors might affect that decision (e.g., maintaining a certain standard of living, ensuring that children aren’t given too much too soon)? It's a good idea for the plan to create incentives for heirs to learn from their mistakes and establish financial prowess.
  • Is your client part of a blended family that may have potentially conflicting goals? Balancing stepparent support and needs with those of adult children requires thinking outside the box. These days, it’s increasingly common for clients to divide assets into separate family groups and accelerate inheritances, allowing grown children to make more immediate plans for their own futures.
  • When (if ever) did the client last review the current plan with the children or heirs? Reading the plan or executed document can serve as a valuable reality check. It can also spark important conversations about the rationale behind planning goals and decisions.
  • Has the client begun to educate adult family members about the duties he or she expects them to take on? It's vital that heirs understand the responsibilities of an executor and trustee. If family members are charged with overseeing financial and health care matters, they must be prepared to carefully evaluate and potentially make difficult decisions.
  • How are younger children and heirs being groomed to take a future role in family matters and finances? Setting up an allowance and savings plan is a simple way to build a child’s sense of financial responsibility.

Step 3: Plan the Family Meeting

Once you’ve helped your client assess his or her plan, it’s time for the family meeting. These meetings can be an effective venue for reviewing clients’ goals and allowing individuals to present ideas. Plus, an open forum allows younger family members to ask questions about the plan, possibly preventing future conflicts or litigation.

Here are some best practices to keep in mind: 

  • Consider setting a date that overlaps with another family event. Does the family get together for the holidays or vacation? Is it feasible to hold an annual family meeting at the end of one of these occasions?
  • Determine who should participate. Will the meeting involve the entire family, including spouses or extended family members who may be affected by the discussions? If your client feels comfortable with you serving as the family coach, you can then help manage any difficult conversations. The goal here is to ensure that everyone is heard and that confidentiality is maintained.
  • Choose a comfortable environment that allows open communication, as well as separation when necessary. Treat it as a business meeting that cannot be interrupted by phone calls or other distractions.
  • Encourage your client to hold family members accountable. The success of the wealth transfer plan depends on accountability, and the family meeting is a good time to assess the extent to which various individuals are willing to participate in the plan.

Step 4: Discuss Overarching Strategies

Whether the client has one objective or many, the family should discuss the strategies that will be used to carry out the plan. Here is a high-level list to get the conversation started.

  • Estate planning. What are the client’s basic estate planning goals? Has the client identified his or her fiduciaries and made his or her wishes clear in the estate documents?
  • Health and long-term care matters. Has a plan been made to provide for the financial aspects of the client’s health and long-term care needs? Is family asset preservation a concern?
  • Lifetime gifting strategies. Annual gifts or lifetime gifting strategies can be an effective way for clients to help their heirs build financial responsibility. Does the client feel comfortable transferring assets to his or her children, and at what time intervals?
  • Basis. Whether there will be a basis adjustment is a question to ask with every estate planning solution. Assets retained by the client as part of the taxable estate receive a basis adjustment upon his or her death. If the client chooses to gift or transfer an asset prior to death, the recipient receives the current basis. If the client sells the asset, the client will recognize a gain or loss.
  • Transitioning the family business. A family business can be the centerpiece of intergenerational wealth transfer—raising complex tax, legal, and financial planning concerns. Which family members will continue to be part of the business and remain committed to its ongoing success? It’s important to consider the business transition in light of global estate planning goals, particularly if there are heirs who aren’t involved in the business; many clients may be concerned with equalizing the treatment of those family members.
  • Charitable planning. Charitable strategies can help clients include future generations in managing the wealth transfer and encourage them to develop their own charitable goals. For example, if a donor-advised fund is in play, discuss charitable initiatives the family will support in the current year and down the road. Each year, different family members can do the research and recommend a worthy charity to the group.

Step 5: Take Stock and Follow Up

Once all the strategies have been discussed, it’s your job to help keep the plan in motion. Encourage your clients to take the following steps: 

  • Commit to the annual, scheduled meeting.
  • Assimilate individuals’ ideas and opinions into the plan.
  • Continue to define and refine family members’ roles to ensure that the plan is successfully carried out.
  • Address any concerns as they arise.

Ongoing Support

Building intergenerational wealth is a continual process. Be sure to provide ongoing support and encourage the involvement of clients’ tax and legal advisors, as well as any charities they work with. Most of all, continue to emphasize the importance of family discussions, even after a structured intergenerational wealth transfer plan is in place.

What other steps have you taken to ensure a successful transfer of wealth to the next generation? Do you hold annual family meetings? Please share your thoughts with us below!

This material is intended for informational/educational purposes only and should not be construed as investment advice. Please contact your financial professional for more information specific to your situation.

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