Hi, thank you for tuning into today’s Emerald GEM, which stands for Get Educated in Minutes. I’m Julie Weiss, national director of Family Office Experience for Wilmington Trust Emerald Family Office & Advisory® and your host for today’s podcast. In today’s GEM I’m going to answer the question: Why is discussing my family’s view on and approach to wealth so important, yet so challenging?
Have you ever wondered why personal finances are on the list of taboo topics not to discuss at the dinner table, yet we have no problem debating the impact of inflation, doing a deep dive into how new product launches may affect a company, or discussing the impact of world events on the financial markets? But take the next step and evaluate how those topics affect your families personally? That is where the vast majority of table talk stops.
Money, specifically personal finances, can make some people uncomfortable. Some people equate wealth to personal importance, others may feel monetary inequality is a great source of social conflict. Those with money may feel guilty for the financial freedom and flexibility. Add in the family dynamic, and the power that can be associated with money is often heightened. So why is it so important to change the dynamic? By destigmatizing talking about money, your family may have a far greater chance of protecting your financial legacy and disproving the statistic that wealth created by you (generation one) will be lost by the time your grandchildren are of age to enjoy it (generation three).
We hope to equip you with the tools to not only begin the conversation, but, more importantly, to effectuate an ongoing dialogue, allowing your family to have a healthy relationship with money, finances, and each other.
Today, I would like to share a few activities that may drive positive and rewarding experiences for our clients that many families can undertake.
A natural entry point to the personal financial discussion is drafting a family mission statement. A family mission statement may serve to guide future decisions and discussions. It can help provide a shared vision and sense of direction, fostering stronger relationships, and creating a family identity. Your mission statement can promote unity by involving others in its creation and encouraging open communication, teaching listening and respect for others’ ideas. This process may help articulate and clarify values to serve as a compass for decision-making moving forward. The drafting process encourages introspection to help find the words to describe your family’s values, the role of past generations’ success on future generations. These stories and discussions can begin to frame your legacy. The mission statement may be described as the emotional side of your family’s balance sheet. We encourage families to articulate their guiding principles regarding risk, investments, and purpose. It should be broad enough to withstand generational changes, while leaving behind your personal, custom imprint. Families who successfully transfer wealth across multiple generations often come to view the mission statement as the intangible binding connection holding the family together.
In drafting your mission statement, you should consider your views on inheritance, philanthropy, family, and access to wealth. These discussions can allow for meaningful dialogue with your estate planning professional. The line of communication your family worked hard to open in drafting your mission statement can strengthen the impact of your estate plan. By removing the mystery around your personal finances and intentions, you may provide clarity and understanding of your wishes and intentions, thereby hopefully preventing misunderstandings and confusion in the future. It may also help to manage expectations regarding inheritance.
Consider the following hypothetical examples based on some of my past experience. Two families have similar wealth and similar asset disposition plans. Both families have large taxable estates, and both families are incredibly charitably inclined with plans to leave 90% of their estate to a foundation upon their passing. Family “A” believed in open communication from the age of 10, teaching their grandchildren the importance of philanthropy, including them in annual gifting, discussing how decisions were made. The dialogue was frequent, consistent, and ever deepening. Family “B” felt their wealth was their business, and their children and grandchildren should be grateful for anything. Now, you can only imagine what happens when the estate plan is a surprise reveal for Family B. Rather than gratitude, the heirs feel anger at the perceived slight. Perception can be reality. Through open communication transmitting your values via a family mission statement, you can shape the lens through which your heirs view their inheritance. It can either be a lens of understanding or one of confusion.
As you become more comfortable communicating with your loved ones, many may find it helpful to discuss their approach to investing. No two people have identical views on risk, liquidity, or investments. Even couples often disagree on financial management. From types of assets to how much is enough, it is important to listen to one another, and recognize the value in each differing view. Many families will work with an advisor to have an aggregate asset allocation, factoring in each individual mix based on needs and risk level to help mediate these differences while accomplishing the goals set forth in the family mission statement. To implement the plan you create, your family needs a way to monitor its net worth and cash flow. Are your assets growing, or is your spend rate exceeding a sustainable growth rate, forcing a second look at your long-term plan? Are your assets being held in the proper type of entities to protect you? Are your bills being paid from the right entities on a timely basis? Is your insurance sufficient? These are the questions every family should ask themselves. Creating a structure to evaluate the monetary piece of your legacy can allow you to maintain the integrity of your planning.
To help ensure your family’s wealth management experience is maintained as constructed, the final element to discuss is family governance. Family governance is a framework developed, outlining how decisions are made and how frequently the above is reviewed and evaluated. Sadly, the absence of a commitment to family governance can jeopardize the strong family legacy you are hoping to achieve. At a minimum, governance should typically include an annual review of a net worth statement and cash flow, and a look at your family’s mission statement. Be critical and revise if it no longer fits. Your dedication to drafting and maintaining a governance policy may expand your family’s financial knowledge, but also allow them to be molded by your values.
You may be listening to this as a business owner and wealth creator thinking, “I know this, but wow is this overwhelming! How can I communicate years of experience and beliefs to my children and grandchildren?” You are not alone. When thinking about creating and communicating your mission statement, estate plan, and financial strategy, we find it useful to frame the strategy as Family Legacy. The heart of family legacy is formalizing communication and education. I encourage you to listen to our library of Emerald GEMs focused on this critical component, including Talking to Your Children about the Family Wealth, Creating a Family Motto, and The Importance of Family Communication.
We encourage you to remember the work that was required to create your financial legacy. There are simply too many what-ifs to take the risk and not work to normalize the conversation around money and the values we attach to it. You owe it yourself and your family to create a culture that values transparency, respect, education, and communication. We hope we have enticed you to begin the conversation, so your legacy may endure.
Thanks again for joining us today. Please contact your Wilmington Trust advisor if you have any questions about how to discuss your family’s view on and approach to wealth. We would be glad to help you.
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