Much is being written today about artificial intelligence (AI) and the way it will impact professional services. Some think of AI as a way of using massive amounts of data to improve efficiencies and drive down costs. Others see the technology as a threat to their careers and fear it will replace their jobs at some point.
One thing for sure is that AI is here to stay. However, that doesn’t mean AI will take over all aspects of wealth planning for our clients. One area that needs a “human touch” is helping our clients communicate their estate plan to their children and grandchildren. This process can be fraught with emotions and family dynamics and requires an individualized touch. Because this communication is a vital part of the plan’s success, it should not be ignored.
Communication Is a Vital Part of Wealth Planning
When it comes to certain tasks, we know we should do them, but we put them off anyway. Talking to your children about your estate plan is a prime example. Just like scheduling that doctor’s appointment or finally organizing the garage or spare bedroom, family discussions around inheritance typically take a back seat to almost everything.
Some of the more common reasons we hear are that clients don’t know how to start the conversation, they don’t want their children knowing all they own, or they are afraid that if they tell their children they are getting an inheritance they will lose all incentive to work. These fears often prevail and result in children receiving a large sum of money or property that they don’t really know how to handle. They often don’t know what their parents would have wanted them to do with it.
Let’s be clear: effective communication is essential to a successful estate plan. It helps avoid confusion, hurt feelings, and family conflicts in the future.
Why Clients Should Have the Conversation With the Next Generation
We should first acknowledge that talking to your heirs about your estate plan can create a great deal of anxiety. Like many other things we don’t really want to do, the apprehension leading up to it is typically worse than the actual event. By communicating about your estate plan, clients can convey their wishes for their legacy to their heirs. This legacy conversation should include topics such as the client’s goals, their charitable or social values, and their desire for their heirs to exercise fiscal responsibility with their inheritance. The conversation also should include their wishes for their collectibles such as family heirlooms, art, jewelry, or memorabilia.
By having these conversations with their heirs, clients can paint a clear picture of their wishes so there is no confusion or speculation after they pass. In addition, this conversation can help clients understand their children and grandchildren’s values, which may help the clients adjust their estate plan.
Where to Begin
First, clients should know there are professionals who can help them with the communication process, so they do not have to do it alone. Clients should start off the conversation from a big-picture perspective by allowing their children to learn about the legacy they want to leave. This does not require clients to go into specific monetary values or asset descriptions from the start. Clients can simply begin by sharing their values about charitable giving, education, social impact, and the role they want money to play in their family’s future. This type of broad conversation is easier for the whole family and can give direction to future conversations.
An essential part of any effective communication is preparation. As part of this preparation, clients should review their estate plan with their professional advisors. This helps ensure the client understands what their plan involves and allows them to make changes, if necessary, before they communicate with their heirs. Clients are encouraged to organize and summarize their finances on a balance sheet or personal financial statement. This not only allows them to stay in control of their wealth, but it also makes for better decision making during their lifetime. Once their finances and estate plan are organized, and they understand what they own and how it will pass to the next generation, clients can begin thinking about how they want to communicate to their heirs.
Breaking the Ice
Communication experts know that one of the most effective ways to communicate a message is to make it tangible to the listener through real-life examples. Clients might begin the conversation by talking about someone they knew who did not have a plan and how that created difficulties and challenges for their heirs. The client may even have a story about how a family member had to deal with their parents’ estate and how the lack of communication made it more difficult.
One of the reasons clients put a plan in place is to lessen the burden on the next generation, and their children need to hear that. These real-world stories can help lay the groundwork for a better conversation about the planning process and what the client desires for their own plan.
Keeping the Lines of Communication Open
A client’s estate plan is not only about money or property, but also about the emotions and family dynamics intertwined with the assets. Having an open line of communication allows children and grandchildren to contribute meaningfully toward the plan and empowers them to ask questions. This can provide insight into areas where more education is needed for them to fully understand their role and responsibilities. It also can foster understanding among family members when there are differences in the amount or structure of the inheritance between the heirs.
Educating the Next Generation
Many estate plans for wealthy clients include the use of complicated legal structures such as trusts and business entities. By talking with their heirs about these structures while they are still alive, clients can help them have a better understanding of the benefits of these structures. In addition, clients can work with their professional advisors to help educate their heirs on what it means to be a beneficiary, a trustee, an executor, or a member of a business entity. Heirs also can learn what types of professionals they can turn to for help when they assume these various roles and responsibilities in the future.
Clients need to understand that talking with their family about their estate plan can help ensure that their plan is successful after they pass away. It is a wonderful way to verify that their heirs know their values and intentions. In addition, it can help their heirs prepare for their inheritance by having a better understanding of the structure and the types of professional help they will need in the future. Clients also should know that they do not have to tackle this task alone. There are professionals who can help them prepare for and assist in having these conversations with their family.
Content partially reprinted here with permission from Heritage Auction Journal.