Insights from research by Hugh Magill, Executive Vice President and Chief Fiduciary Officer at Northern Trust.
A new construct is needed for talking and making decisions about wealth.
Some decisions families need to make are relatively easy. Where should we vacation this year? Where should we hold a birthday party? Decisions about wealth, however, tend to prove much more challenging. For example, how should we manage shared assets? Or, what should our family business succession plan look like? Simple solutions usually do not exist for these types of issues, and families often need to navigate complex interpersonal dynamics.
In prior generations, families generally followed a relatively straightforward process. An authority figure – often the father – made the decision, which if communicated at all, was understood as final.
Today, this model is changing as families navigate more complex structures and adjust to generational shifts in attitudes, behaviors and preferences. While this presents a challenge for many families – who may not know what their model should be – it also opens the door to more fulfilling conversations. Dialogue can expand beyond the traditional concerns of “how much wealth will I receive?” and “how soon will I receive it?” to conversations that communicate family history, purpose and values.
Changing Family Dynamics
Echoes of a Changing Wealth Dialogue
|Pre-Mortem Expectations||What will I get...and when?|
|Post-Mortem Expectations||What was he/she thinking?|
|Tactical Concerns||How will we provide for:
Aging parents and dependent children?
How should we treat:
Artificial Reproductive Technology Children
AN APPROACH FOR FAMILY DECISION-MAKING
Talk about wealth regularly.
Many families spend very little or no time talking about wealth. This contrasts sharply with the amount of time they spend earning it and managing technical and tax issues. But ultimately, some of the most profound wealth management challenges that families face are more qualitative in nature.
Talking about wealth is the best way to confront these challenges and is every bit as important as creating an efficient estate plan —if not more so. For example, developing a wealth transfer plan without preparing your loved ones for the responsibilities of financial wealth entails real, but avoidable, risks such as financial mismanagement, entitlement syndrome and lack of productivity.
Learning to talk about wealth will also provide a foundation for future collaboration and decision-making, particularly for more difficult issues such as those associated with health care and the end of life.
Write it down.
In addition to talking about wealth regularly, consider including a Statement of Wealth Transfer Intent (SOWTI) in your estate planning documents to communicate important qualitative aspects relating to your wealth, such as your values, how your wealth was built and your goals for how your wealth may contribute to your beneficiaries’ well-being.
Build a decision-making model.
When a decision needs to be made, following a construct can facilitate greater buy-in and lead to better outcomes. Consider answering the following questions before you sit down as a family.
What is the issue?
In addition to defining the issue at stake, consider what you really want for everyone involved. What are your immediate and longer-term goals?
Who is family?
Think carefully about the inclusion or exclusion of family members as it relates to the decision. Whom do you consider family, and who will be impacted? Does your definition of family include your children’s non-marital partners? Does it include in-laws?
Who is at the table?
Which family members should you include in the actual discussion? Answers might range from the entire family to a relatively small number of people representing the collective group’s interests, depending on the issue.
The setting for your discussion should align with the nature and complexity of the issue. The intimacy and warmth of an informal environment better suits certain conversations, while other discussions might benefit from a more formal venue.
Who has decision rights?
Who should make the final decision? Who has the legal power to make such decision and how does that impact the discussion? This is not always clear but should be established upfront.
The Family Decision-Making Continuum
Learn to communicate openly.
In business and day-to-day life, we tend to approach conversations as debates. We often try to convince rather than understand, and consider ourselves successful when we have persuaded someone to adopt a position or action. While this approach sometimes works, it can also lead to misunderstandings or even conflict – particularly when family wealth is involved.
What is the alternative? In the book, “Crucial Conversations: Tools for Talking When Stakes Are High,” the authors offer an alternative model called “learning to talk tentatively.” This strategy invites others to add their viewpoints and focuses on building a shared understanding, even in situations where decisions have already been made. This style of conversation can significantly improve your effectiveness in family discussions. While this inclusive approach will likely take time to learn, the following guidelines can help:1
- State what you really want for everyone. Take the time to tell your loved ones what you want them to gain from the discussion.
- Share your path. People often understand dialogue best in story form. Explain to your family the factors and thinking behind your decision.
- Check and affirm. Instead of declaring, invite others to express themselves and ask questions.
- Allow quiet into your conversations. Periods of silence can provide permission for people to reflect more carefully on what they are hearing.
- “Crucial Conversations, Tools for Talking When Stakes Are High,” Kerry Patterson, Joseph Grenny, Ron McMilan, Al Switzer, McGraw-Hill, June 2002.