We all know a financial advisor will help you and your family plan for your financial future. But naturally, with families come emotions, and with emotions come complexities.
The undeniable reality is that every family has conflict at some point. When you think about your family’s estate plan, existing conflicts can significantly impact how you approach wealth transfer and the roles individuals play within the family enterprise.
Your financial advisor is not the family mediator, but they can be a partner to help you identify the roles, strengths and function of each family member — and having context about conflicts that may influence behaviors within the family can help. So, when is the right time to bring your financial advisor into the fold when family conflicts arise?
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Defining roles and responsibilities
When you think about your long-term estate plan, each family member should have a distinct role and set of responsibilities, no matter how big or small. These roles should speak to the individuals’ strengths and passions.
For example, if you own a family business and have three children, that doesn’t necessarily mean the business will pass on equally between the three. Perhaps one child has more of an entrepreneurial spirit, or another has a distaste for the business, and forcing them into a significant role may, in turn, increase conflict. Maybe two siblings do not get along, and there needs to be clear lanes of ownership so that they do not compete against each other.
You know your family best, and it’s important for you to share any important background with your financial advisor that can help inform how family members may contribute to the estate plan and participate in a successful wealth transfer. Your financial advisor can then serve as a trusted liaison and gather all members together to discuss these roles and how they contribute to the bigger picture and long-term goals of the family.
When families navigate conflict, the meetings aren’t always easy. But disagreement isn’t necessarily a bad thing, especially when it comes to finances; it shows that the family members are engaged.
Mitigating conflict
Again, your financial advisor is not a mediator. But when the family gathers together to discuss your estate plan, your financial advisor can play a critical role in mitigating conflict not only in the heat of the moment but also long term by ensuring that the conversation stays centralized around the family’s shared values.
Despite differences between family members, every family should have a written mission statement and an articulated set of shared values and beliefs. Families who are managing a more extensive wealth transfer should consider documenting their mission and values through a “family constitution,” which outlines the family’s core values, mission, vision and harder-hitting documents, including policies about how they will treat one another and what they own together.
This may feel very uncomfortable for some families to articulate. Some might find it unnecessary or over the top — you’re a family, so why would you need documents on how to interact with one another? The biggest driver of conflict is a lack of a decision-making process. And when there are significant assets at stake, a formalized system — what we call family governance — will help lay the foundation for clearer swim lanes, easier decision-making and quicker resolution of conflicts.
What family governance can look like
Your financial advisor can help you determine what family governance may look like for you. Some families may hold a family assembly or regular meetings during which family members learn and plan for the future. If you have a family business, setting up a working group can help propose policies on matters such as family employment, family communication and talent development.
They can also help you establish a process to evaluate the next generation of leadership for your family, assessing qualifications, skill sets and interests. There are many roles, big and small — shareholders, philanthropic leaders, wealth creators, wealth oversight, governance members, family council leaders and more. There should be a place for everyone wanting to participate in the family estate. With that said, your financial advisor should be aware of the interests, strengths and personalities at play so they can help identify the roles to meet each family member's expectations and to align with their desired level of involvement.
Your financial advisor’s role isn’t to break up fights or be there for you to vent to when a conflict arises. However, it’s undeniable that family matters can get emotional and sometimes tense, and it can make sense to include them, as a trusted partner, in the conversation when there are pressing issues that impact the family. As a third party, they can offer an impartial view that can facilitate finding a resolution vs letting conflicts simmer. With heightened awareness around ongoing sensitivities, your advisor can help you set up a framework where everyone feels like they have a seat at the table.
Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal matters. 3520533 04/2024
Related Content
-
Time to Spring-Clean Your Finances: A Financial Professional's Four Steps to Tidy Them UpA midyear review of everything from spending to saving, with adjustments as needed, can set you on track to financial security. Plus, don't forget to check in on your workplace benefits.
-
Why a Law Firm Secretly Recording Client Conversations Is Wrong (and Illegal)A law firm that has been recording client conversations without the clients' knowledge or permission and has threatened employees if they speak out faces legal and ethical challenges.
-
Donating Complex Assets Doesn't Have to Be ComplicatedIf you're looking to donate less-conventional assets but don't know where to start, this charity executive has answers, such as considering a donor-advised fund (DAF) for its tax benefits and ease of use.
-
Think a Repeal of the Estate Tax Wouldn't Affect You? WrongThe wording of any law that repeals or otherwise changes the federal estate tax could have an impact on all of us. Here's what you need to know, courtesy of an estate planning and tax attorney.
-
In Your 50s? We Need to Talk About Long-Term CareMany people don't like thinking about long-term care, but most people will need it. This financial professional recommends planning for these costs as early as possible to avoid stress later.
-
Social Security Pop Quiz: Are You Among the 89% of Americans Who'd Fail?Shockingly few people have any clue what their Social Security benefits could be. This financial adviser notes it's essential to understand that info and when it might be best to access your benefits.
-
Such Attractive Yields in High-Grade Munis Are Rare and May Not Last LongAccording to this munis expert, the last time munis were this cheap was a brief period in 2023. If you kicked yourself for missing out then, you have a second chance now.
-
Financial Analyst Sees a Bright Present for Municipal Bond InvestorsHigh-tax-bracket investors have an excellent opportunity to secure low-volatility, high-quality returns at yield levels rarely seen in over a decade.
