This is an article written by Dr. Timothy Habbershon with Fidelity Viewpoints.
Financial matters can have a significant influence on every aspect of life, yet families often avoid discussing financial topics—particularly estate planning decisions—for fear they will stir up family conflict.
However, when it comes to financial conversations, it is possible not only to avoid conflict, but also to positively shape future family relationships.
Bill was a family man who could fix anything, and his children grew up counting on that. He wasn’t the most communicative person, but he was a devoted father. His wallet nearly burst at the seams because it held so many family pictures.
When Bill passed away suddenly, the whole family was heartbroken. When his will was read, his daughters experienced a sense of abandonment inconsistent with the feelings they had for him throughout their lives. Their dad was so generous, and always put them first. They could not understand the choices he made for them and their children through his estate plan. This lack of communication and confusion led to family conflict and eventually to no interaction at all. Bill could have fixed this, but he wasn’t there to fix things anymore.
Bill’s family story is not unique. Bill was a kind and loving father, and his family was, by most standards, close. But by excluding his children from financial conversations and decisions on his estate plan, Bill set in motion a series of unintended consequences that were passed down along with his estate.
A Development Arena
Next to health, financial matters may have the most comprehensive influence on every aspect of life. Unfortunately, similar to health matters, families tend to avoid these topics, or put them off for as long as possible. But there is a progression of financial topics through the life of a family.
Each one of life’s events provides opportunities for families to learn and grow together. The developmental goal is to break the silence and move beyond parent-child hierarchs to become peers in discussions about these important and sometimes difficult financial topics, through a lifetime of open conversation.
5 Rules of Thumb for Navigating Money>>Wealth>>Estate Planning
A rule of thumb is a principle that helps frame complex conversations. Rather than defaulting to silence or simplicity, the 5 rules of thumb below provide general guidance to help foster reflective and relationship-building conversation, allowing families to co-create outcomes.
1. Closeness-Distance: Be mindful that every financial decision has the power to create closeness or distance in family relationships. We can all recognize what closeness and distance feel like, and can understand the differences. Close family relationships typically involve open conversations: All views are considered, everyone feels respected and cared for, and there is a sense of fairness. Distant family relationships, on the other hand, often involve a lack of communication: Some family members may feel they have no voice, they may feel judged or controlled, and they may feel unfairly treated. So when it comes to financial conversations and the decisions that surround them, ask yourself, ‘With what I am thinking, saying, or doing, am I creating closeness or distance in my family’s relationships?’
2. Voice-Vote: Giving a voice and input to others does not mean giving up the vote and final decision on outcomes.
When it comes to navigating Money>>Wealth>>Estate Planning, it is often difficult for families to determine who should have a voice and who should have a vote. The default parental practice on financial topics is generally to keep both the voice and the vote. When John found out his parents appointed him the trustee for his special-needs brother, he understood his obligation, but wished he had been given a voice—and maybe even a vote—in the decision.
When Sandra was told how much money she was allowed to spend on her wedding, she felt she should have had a voice. When she was given a prenuptial agreement by her father’s attorney, she was confused about who should have the voice and vote.
At every developmental stage, parents may avoid or fear giving children a voice or relinquishing the vote because it means giving up degrees of control. But as children mature and change their roles in the family, the Voice-Vote engagement between parents and children should also evolve. As children marry and form their own families, and as parents age and consider next-generation planning and age, passing along the vote becomes an important life passage. When these Voice-Vote decisions are made together, they build mature family relationships.
3. Fair-Equal: Fair is not always equal, so explore perceptions of fairness with family members. Siblings do not always have the same lifestyle, capabilities, career choices, health, maturity, marriages, number of children, or life spans, and parents’ circumstances and beliefs can change over time. And yet, the more differences there are within a family, the more parent seem to simply default to “fair IS equal.”
When Jonathan’s mother asked him if he would approve of her helping his brother financially, even though she wasn’t doing the same for him, he did not know how to react at first. This turned out to be a good thing because it gave them the opportunity to talk through the family’s circumstances. This allowed Jonathan to hear his mother’s thinking, and her to hear his.
This scenario illustrates the importance of talking through what is considered fair. Fairness is a matter of personal interpretation, so what each person perceive as fair may differ widely. And the basis for deciding what is fair must also be clarified: Is it based on need, merit, bringing siblings’ circumstances in line, or trying to treat everyone equally? Both the process and the ultimate decision are factors in the perceptions of fairness.
4. Transparency-Disclosure: Balance age-appropriate transparency with future disclosures.
One of the most common Money>>Wealth>>Estate Planning questions is ‘When is it appropriate to talk about money or disclose wealth and estate plans to children?’ Ultimately, this rule of thumb highlights that it is not just a question of when to disclose. How to create an appropriate level of transparency at each stage of life is equally important to finding the right balance. ‘Disclosures’ about wealth and estate plans are often prompted by late-in-life angst, illness, or death. Balancing transparency and disclosure encourages parents to have developmentally appropriate Money>>Wealth>>Estate Planning conversations with their children. This creates a sense of shared knowledge and decision-making through time, and still allows parents to hold back certain information until they are comfortable sharing it.
Paul and Jan both came from families that never discussed money, and late-in-life disclosures influenced their personal finances and family relationships. Jan was called upon to be the sole caretaker and financial decision-maker for her parents, which left her with added stress that her siblings were spared from. It also created secrecy and jealousy among Jan and her siblings because she held the financial reins and they felt excluded.
5. Wish-Fear: Seek wishes in your financial decisions and actions rather than defaulting to outcomes based on fear.
Conversations and decisions surrounding Money>>Wealth>>Estate Planning are often laden with wishes and fears. We wish for our children to have an easier life than we did, but we fear that any assistance or knowledge of family wealth will destroy their motivation. We wish for our children to have passionate and fulfilling lives, but fear they will choose careers that cannot support the lifestyle we want for them. We wish our parents would be more forthcoming with their retirement and end-of-life plans, but we fear any conversation about the subject.
When Mark’s uncle received his inheritance, he quit his job and never worked again, and his cousins followed in their father’s footsteps. Mark fears money will likewise demotivate his own children, so to ‘protect’ his family, Mark lives like a miser, never discusses his personal wealth, refuses to help his children financially in any way, and is considering giving all his money to charity.
It is important to ask ‘What are my fears?’ and ‘What are my wishes?’ to uncover the true motivation behind behaviors and decisions. Living like Mark is a missed opportunity for families to involve one another in their wishes about the future. Fears also erode the quality of family relationships and communications.