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Planning for and having conversations about wealth
Talking about money, especially for those with significant resources, can be uncomfortable. In fact, about a quarter of families avoid conversations about wealth1. Some families delay because they rationalize that starting the dialogue with the rising generation might impede motivation, while others are simply unsure of where to start. We find ourselves in an unprecedented time in which families are spending more time together and some families, simply, have more time. For many, this can serve as a chance to initiate or continue dialogue about the purpose of wealth and the responsibilities, opportunities and challenges it may bring, particularly for the rising generation.
To help illustrate some key frameworks that we at the Merrill Center for Family Wealth™ have applied with a multitude of families, we share the story of Shane and Jamie Bennett2 who took this opportune time to initiate the family wealth dialogue with their young adult children, Parker (19) and Jordan (18).
Early on in their city’s social distancing mandate, Shane and Jamie realized that they would be spending much more time together as a family than usual. To Jamie, this time together presented itself as an opportunity to engage their children in a family discussion around wealth. Shane was initially hesitant to bring up the topic, concerned about the potential impact that knowledge of the wealth might have on the children’s drive. Shane was also unsure of where to begin. He and Jamie had both grown up in middle-class families and while he was very proud of the success they had achieved as a result of selling their business, he felt uneasy about straying into a territory of communication for which he felt they had “no reference point.”
To complicate matters, the couple had set up custodial accounts for their children when Parker and Jordan were quite young, which had grown significantly in value. The couple’s Private Wealth Advisor, Mary, had recently flagged that Parker was nearing the age of termination (21) in their state, at which point she would have legal ownership of the assets. While Parker and Jordan knew about the 529 plans their parents had started as a tax-efficient way to help cover the cost of their respective college tuitions, they were not aware of the Uniform Transfers to Minors Act (UTMA) accounts their parents had also set up. Shane conceded that there was some time-sensitivity to starting the dialogue.
Shane and Jamie spent the following week connecting with Mary. Together they developed a thoughtful approach and identified specific items they wanted to address with their children. Mary underscored that effective communication about wealth, particularly with the rising generation, is an evolving process rather than a one-off conversation. As a first step, Mary encouraged Jamie and Shane to reflect on their goals for the dialogue and to consider what information Parker and Jordan may already have and what they could do to provide context. Mary shared the Merrill Center for Family Wealth’s whitepaper, Is There Love in Money? How Families Put Wealth into Perspective, which examines that the way individuals and families perceive their wealth has a profound impact on how money is valued and used.
Plan for the conversation before diving in. Use the below questions to help organize your thoughts:
In starting the dialogue with their children, Shane and Jamie were sensitive to ensuring that Parker and Jordan not misconstrue their intent or be unnecessarily alarmed. Mary had shared the story of another client who was eager to start wealth conversations with his young adult children. The client sent a calendar invite to block the time during Thanksgiving weekend without sharing any context. Two of the client’s three adult children called Mary alarmed that their father was facing a sudden health issue. Jamie and Shane wanted to avoid falling into the same trap. Their solution was to be candid. They shared with Parker and Jordan that while they felt some unease about discussing the family’s financial situation, they recognized that their children were young adults and that they loved and respected them enough to start the conversation.
Additionally, Jamie gently pointed out that Shane had a tendency to be quite loquacious, particularly when the topic switched to financial or investing matters, and that that might be intimidating to Parker and Jordan, who were studying life sciences and the arts, respectively. Mary noted that this observation was important, as many families communicate about wealth in ways that can lead to outcomes they didn’t intend. A majority (52%) of families’ communications flows only one-way, either to or for family members (see image below).3 Deciding how to communicate with Parker and Jordan was important to them because they wanted to ensure that their children felt included in the conversation (a with style of communication), not that they were being lectured.
Given that this type of dialogue felt outside of their comfort zone, Shane also welcomed Mary’s suggestion of setting a few ground rules, with Parker and Jordan’s input. To show that they were sincere in their desire for collaborative dialogue, Shane volunteered a ground rule of “balancing that no one family voice crowds out the others.” Jordan suggested “being respectful of different opinions but not shying away from having an opinion”, reflecting on the family’s tendency to not always share what was truly on their minds. Jamie added “doing our best to be present – putting the phones away until a break.” Parker volunteered herself as the scribe to ensure that the family had a good summary of the discussion. While Jamie was initially skeptical of the need for ground rules, she was pleasantly surprised by her children’s openness of the idea and how stating their ground rules explicitly set a different welcoming tone for the conversation.
Consider not only the content of the conversation but also the approach and how it will be interpreted by your family members. Specifically:
In their initial prep call, Mary highlighted to Jamie and Shane that talking about wealth does not mean disclosing sensitive financial information. In fact, the most effective wealth conversations most often start not with the “what” of a balance sheets, but with the “why” of the purpose of wealth. Engaging the rising generation (or other family members) in a conversation about wealth isn’t a single conversation, but rather a series of thoughtful conversations over time – a progressive disclosure. These discussions are intended to create a set of common agreements to help guide behavior. This approach is similar to a dimmer switch that slowly turns on the lights – an intentional process of disclosing a bit of information at a time, gauging the reaction and making the decision about further turning up the lights.
In reflecting on their “why”, Shane and Jamie thought of the years of hard work that led to their business sale, and the opportunities it provided for their family, particularly the chance to support their children’s educations. While Parker and Jordan knew that their parents were covering the cost of their college tuition and fees, they never had an explicit conversation about the driving motivations or expectations. Mary had shared that silence on this topic could cause confusion and potential guilt in the rising generation; according to Merrill’s research, “just 1% of 51–69 year-olds associate wealth with feeling guilty, while 16% of those 18–34 feel that way. Perhaps not surprisingly, while only 2% of those 51-69 say wealth confuses them, 18% of 18–34 year-olds said they were confused by wealth.”4 The solution, according to Mary, was to start by defining their broader values, or operating principles, when thinking about and making decisions about the family wealth.
Shane and Jamie welcomed the idea of taking a step back before diving into investment strategy and UTMA accounts, but were unsure where to start given that the topic of values felt somewhat nebulous. Thankfully, Mary had mailed them a few sets of the Merrill Center for Family Wealth™ Value Cards, which included a range of values organized across four categories: financial, lifestyle, relationship and community. The task was to pick three cards in each category that most resonated with them. To reinforce their with form of communication, Mary had suggested that each of the four family members go through the exercise and select their top 12 cards. Jamie and Shane also heeded Mary’s advice in emphasizing that the goal was not to pick the same cards as each other but rather to better understand each individual family member’s selections. What followed was an interactive and fun exercise.
While there was some expected divergence in the selections, there was a tremendous amount of overlap. All four family members chose “Spending time together as a family to engage, explore, learn and travel” under the relationship category and “A strong work ethic” under the lifestyle category. They also unanimously selected “Education and lifelong learning” under the financial category and “Understanding and measuring the impact of our giving” under the community category. The exercise provided a foundation for Shane and Jamie to provide color on what drove their decisions to date, by sharing that their definition of success was ensuring that their children could pursue the careers they felt passionate about, not solely making the decision based on financial compensation. They also shared how the desire to support education played into their focus on preserving wealth. Jordan noted that while he felt thankful to not have to take out college loans like so many of his friends, hearing his parents’ motivation for it made him even more grateful. Parker was pleased that they all selected “measuring the impact of giving”, as she knew that her parents were philanthropic, but was not sure whether they were open to including her and Jordan in the decisions about philanthropic giving in the future. Thus, starting with values allowed the family to have a meaningful and concrete dialogue about what mattered most to them.
Shane and Jamie had begun to “turn on the lights” with a collaborative discussion about the purpose of family wealth and the core principles that govern its use. Continuing the conversation the following weekend, they were eager to link their defined values to some of the wealth structures in place. For Parker and Jordan, hearing about their parents’ commitment to education and thoughtful spending spotlighted that the plans were not just a means to gather a tax efficiency. Next, Jamie and Shane revealed the existence of the UTMA accounts, noting that these accounts were tied to their value of stewardship and the desire to provide security for Parker and Jordan to pursue their educations. Unlike the 529 accounts, the funds in these accounts were not limited to education and could thus be used for a down payment on a future home, for example. Jamie and Shane shared that legally, each of the children would receive control of the funds upon turning 21. The focus was on the importance of effectively managing the funds. To make this endeavor feel less intimidating, the parents noted that Mary was ready to speak with Parker and Jordan to share the current investment strategy of the funds and to discuss the best strategy moving forward. While Parker and Jordan had access to Mary and her team, their parents expressed the intent for them to live out the family values in being thoughtful spenders and in keeping the bigger picture in mind. The monetary amount of the UTMAs was not shared, as the parents wanted to first focus on the purpose and expectations.
Jamie and Shane took the opportunity to express that beyond the UTMAs, they also established trusts for both Parker and Jordan, as a means to further their values of stewardship and preservation of wealth for future generations, as well as a philanthropic vehicle called a donor-advised fund (DAF) to help make a positive impact on the community, especially in the areas of healthcare and education. Again, they did not reveal the monetary amounts of these vehicles but focused on sharing their existence to help tie the values to the structures. They noted that Parker and Jordan’s ability to exemplify shared values through their actions and to thoughtfully manage the accounts they received would help inform future gifting. Their ultimate goal was to equip their children with the knowledge and confidence to handle the family assets without damaging themselves or the long-term security of future generations. To Jamie’s surprise, Parker and Jordan were less focused on knowing the exact financial amounts than in understanding their parents’ intent and expectations. Both children acknowledged that while they still had questions about the technicality of the structures and what the investing and decision-making piece would look like, they appreciated being given a ‘seat at the table.’
Consider applying a dimmer switch progressive disclosure approach. After identifying the purpose and operating principles, outline the key structures, focusing on the purpose and guidelines/expectations of each, before diving into the amounts.
To help achieve Jamie and Shane’s goal for experiential learning, Mary and her team scheduled regular meetings with Parker and Jordan to review the investment strategy and current performance of the UTMA accounts. The objective was to start an educational dialogue around investments and to expose Parker and Jordan to real-time experience in tracking investment performance. Engaging Parker and Jordan in these conversations provided them the opportunity to gain familiarity with terms and concepts that they had not been exposed to in the classroom. They slowly became more comfortable asking questions and understanding the various asset classes. For example, they discussed the reasoning behind the current investment strategy of the UTMAs. The accounts were currently invested in a diversified portfolio of stocks, bonds and mutual funds. The portfolio was invested approximately 50% in stocks for growth, and 50% in bonds for safety.
With the help of Mary’s team, Parker and Jordan were able to learn more about the various factors affecting the performance of the UTMA accounts. By the time Parker turned 21, and thus legally able to take over the UTMA account, she had built up two years of experience and felt more comfortable engaging in the decision-making process as well as coordinating with Mary’s team.
Look for opportunities to engage the rising generation in experiential learning, particularly while consequences of their actions are still limited in magnitude. It is helpful to begin the dialogue and build comfort before responsibility officially passes to the rising generation.
As with most endeavors, often the most difficult part of engaging in wealth conversations is knowing where to start. Anchoring conversations in the overall purpose of wealth and taking the time to clarify the “why” behind specific conversations can go a long way in furthering collaborative dialogue and creating a shared sense of meaning. Take a step back to plan for conversations and follow the dimmer switch approach: start with the purpose, begin to introduce existing wealth structures and expectations, and finally share monetary amounts when family members are ready. Explore opportunities for experiential learning to empower family members in the present and future.
1 “Reframing Wealth”, Merrill Private Wealth Management. Data compiled February 2016.
2 The Bennett family represents a compilation family drawing directly from our experience, with identifying details changed to preserve confidentiality.
3 “Reframing Wealth,” Merrill Private Wealth Management. Data compiled February 2016. Q32. When communicating and interacting around money in your family, what is the most common mode of communication? (Select top choice)
4 “Reframing Wealth”, Merrill Private Wealth Management. Data compiled February 2016.