What happens to family fortunes, and why do inheritances get so messy and confusing? Let’s look into the reasons why this occurs and find out how you can prevent this from happening to your estate.
The loss in wealth transfer
Fast-forward 150 years from Cornelius Vanderbilt’s time, and America is going through the greatest transfer of wealth ever. According to a study by the Boston College Center on Wealth and Philanthropy in 2014, an estimated $59 trillion — yes, trillion — will be passed down to heirs, charities and taxes between 2007 and 2061. That’s an astounding amount of wealth changing hands.
What’s sad, though, is that a lot of this money will be lost simply through squabbling between family members.
It’s like HBO’s hit show “Succession,” which follows the lives of a family who owns a global media and hospitality empire. The family’s patriarch’s health is declining, and the family members fight for control of the family fortune.
It can get like that in real life. The Williams Group estimates that 70% of wealth transfers aren’t successful, which means that sometimes heirs get practically nothing. Nada.
Why? I’ll give you three reasons:
- Lack of trust and communication among the heirs. Everybody’s worried about their piece of the pie and who’s getting the largest.
- Heirs are not prepared for the roles and responsibilities that inheriting an estate brings. Managing investments or a business is difficult, and many times other family members don’t know how it works.
- Likewise, the heirs have no idea where the money should go and what purpose it should serve. No one’s thinking long term about what’s best for the family assets.
Imagine five siblings who inherit their parents' property or business. Some may want to sell, while others want to hold onto it forever. Some may want to wait until the market is right. How do you come to a decision without arguing and ultimately destroying the family — and its fortune?
It doesn’t have to be this way.
There’s a way to coordinate an estate among several heirs without it turning into a quarrel or feud.
Estate vs. succession planning
Many business owners think that having an estate plan is enough to keep everything in order. But they forget about their business. That’s why succession planning is so important.
What’s the difference?
Succession planning addresses only what happens to the business itself. It’s the strategy that will allow it to operate smoothly after it’s passed down to the heirs.
Estate planning, on the other hand, refers to all the assets in your estate, which may include ownership in businesses. That ownership is just an asset — and likely only makes up part of the overall estate. The remaining pieces could include retirement plans, stocks and bonds, money market accounts, a house at the lake, and a variety of other real estate.
Here are some tips for dealing with estate planning that should make the transition smooth.
Have a plan: This seems like a no-brainer, but you’d be surprised. According to AARP, 6 out of every 10 Americans have no will or estate plan in place. If you die without a will, your state’s laws determine who gets your assets. In many cases, this may not be what you want. So get something in place. If you have an estate, you’ll need an estate attorney to make sure everything is drawn up correctly and accounted for.
Talk with your heirs: Discuss your financial details with your heirs. Wills and death are something we don’t like to talk about, but you need to be sure that your heirs know the details of your estate so they can start to manage and oversee it once you’ve passed on.
Involve your heirs: This can get tricky — you don’t want one family member monopolizing the planning so they can position themselves for the lion’s share of the estate. But they can help plan based on their knowledge, future availability and expectations. By planning now, no one will be blindsided or unsure about what to do with the estate.
Prepare your heirs: Help them learn how to manage and oversee your assets, especially if you’re passing along a business. Talk with them about what you believe to be the company’s mission and vision, and what you want the company to achieve. Don’t make them guess. In fact, you may want to work on your family’s mission statement so that everyone’s on the right page. From my experience working with families, discussing your assets and the family business long before there’s a transfer in wealth dramatically helps reduce family conflict — long before someone passes away.
Organize your financial documents: Put all your financial documents in one location and label them clearly so your heirs know what each one is. You don’t want them to have to scramble to find different parts of your estate. Keep all this information in a safe location, and let your heirs know where it’s located. Your attorney should have a copy of your will, estate plan and succession plan (if needed).
Build the team: Help build a relationship between your heirs and your financial team, which may consist of your financial adviser, estate planning attorney, and accountant. By doing this, your heirs will know who to turn to if things get complicated. It’ll also help prepare them for what they’re supposed to be doing once they receive the inheritance.
What do all these things have in common? Communication. Talking with your financial team, estate planning attorney, and your heirs will assure that everyone understands each other’s roles. It doesn’t matter if it’s a small business or a multimillion-dollar empire. We all want our fortune to help our loved ones far into the future.
Don’t end up like the Vanderbilts. Plan ahead, and your estate will stand the test of time.
Wes Moss has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than 10 years now, and he does a live show from 9-11 a.m. Sundays. He is the chief investment strategist for Atlanta-based Capital Investment Advisors. For more information, go to wesmoss.com.
This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment adviser before making any investment/tax/estate/financial planning considerations or decisions.