Estate planning often seems to get the lowest priority when people make retirement plans — if it makes the priority list at all. Even some of the most loving and proactive parents avoid working out strategies for the smooth transfer of wealth to their family members.
By Justin Biance for Kiplinger
It makes sense. People don’t like to think about their own death, and the decisions that must be made can seem daunting. Unfortunately, those who delay may cause disappointing ramifications for their loved ones.
Procrastination almost always has consequences. If you put off doing your laundry, you’ll run out of clothes to wear. If you put off going to the gas station, your car won’t run. Those are your problems, for you to handle. If you delay deciding who gets what when you die, it’s your heirs — not you — who will be left to deal with the paperwork and the issues that are bound to crop up.
It isn’t a pleasant task at any time, but it is especially worse when people are in mourning.
When I give workshops, I usually ask how many participants have been involved in settling an estate. Typically, about half raise their hands. Then I ask how many enjoyed the experience. Every hand goes down.
Instead of a peaceful transition — what most people surely hope for — all too often the process creates discord among family and friends. And the financial consequences can be challenging too.
After speaking with thousands of high net worth families and business owners over a number of years, The Williams Group family wealth consultancy found that 70 percent of wealthy families lost their wealth by the second generation and 90 percent had lost it by the third generation.
Which explains why nearly every country and culture has some version of the rather cynical saying, “Shirtsleeves to shirtsleeves in three generations.”
What goes wrong? Using its data, The Williams Group found three main causes of wealth-transfer failure:
- Trust and communication breakdown within the family — 60 percent
- Inadequately prepared heirs — 25 percent
- All other causes (tax, legal, etc.) — 15 percent
These figures show that estate planning tools and the advisers who use them usually aren’t the problem. It’s more about what’s happening within the family — the connections and conversations they have.
So, how can families fix these problems?