Designing Your Family’s Future: Lessons from 2020
What do you do when the most unexpected financial shock of your life is a historic one? You did everything right—accumulated your wealth, invested wisely, were attentive to tax planning opportunities—and still, the pandemic happened and created anxiety for all of us. Traditional financial planning can take a host of developments, such as unexpected health problems, into account—to a point. We had no way of knowing that the world would be brought to its knees in this terrifying and deadly way.
With the rollout of a COVID-19 vaccine, we have the opportunity to look ahead with optimism. We’ve experienced hardships and have been tested, but we are hopeful that persevering through this difficult year makes us better equipped to prepare for unexpected events in the future. A positive yet realistic approach doesn’t say “2021 will be back to normal,” it says “2021 will present challenges that we are better prepared to face.”
Having navigated relentless worries over the health and safety of our families in 2020 means we should be able to take on just about any tough issue—even those that were previously considered contentious, such as talking about money. We’ve all been reminded of the reality that none of us will live forever and that we all need a succession plan for our family and its finances. Being proactive about these difficult talks can be a way to bring your family unit closer together and offers your successors the opportunity to demonstrate responsibility and good stewardship. By sharing our vulnerabilities, we may discover within our families a reservoir of untapped talent and willingness to step in and step up to leadership.
Here are four tips to kickstart your family’s 2021 strategy.
1. Assess Your Family’s 2021 Reality and Plan Accordingly
Each family unit is different, but at the end of the day, we all have people and possessions that need to be cared for. Being caught off-guard when a problem arises, fiscal or physical, offers your loved ones no protection for unplanned shocks. In the new year, conduct a family audit of your financial situation. Discuss what you own and what you owe, what you’ve earned and what could be lost. Examine the factors that impacted your wealth in 2020 and ask what curveballs could occur in the future. Don’t be discouraged that some of these factors are out of your control—you can still anticipate unexpected events through proactive planning.
If your wealth has been affected by an industry-wide downturn or unexpected personal illness, for example, now is the time to evaluate: How did you and others in your position respond? What learnings can you take from that? Were members of your family aware of events that impacted your family? Could more dialogue have helped lessen tension and increase learning? What can more candid and inclusive conversations bring to the table going forward?
For those who were not impacted to the extent of, say, the hospitality industry, now is the time to ask these questions in an event that the next crisis is not as forgiving. Sound family planning is as much about foresight as it is about mentoring and working together. Utilize professional support to hone in on your current situation, unlock future potential and document your wishes for your success. A resilient strategy must be based on current circumstances and a realistic near future.
The beginning of a new year is a good time for a “family check-up” to make sure your plans are in good shape. As Richard Patterson, CEO of San Pasqual Fiduciary Trust Company in Los Angeles, advises, “Among the many issues COVID-19 has brought to the fore is the importance and immediacy of having an estate plan completed or brought up to date. Working with your estate planning or tax attorney to finalize this task should be a priority in 2021.”
2. Build an Inclusive Family Culture
Deciding with whom and how you wish to share the wealth it has taken you a lifetime to accumulate is a reflection of your unique life philosophy. Don’t be afraid to have your values shape your financial activities and ensure the entire family understands the importance of these—after all, you all can’t believe in a plan you don’t understand or buy into.
The past year has affected members of our families in different ways, and this should be viewed as an asset in our diverse approaches to solving problems. Use discussions about the current climate as a way to connect family members in important conversations. In my book, The Business of Family, I discuss how people are capable of contributing to the family dialogue; they’re often just waiting to be asked. The generation growing up through a global pandemic will have different perceptions about what risk and adaptability mean. Embrace it! Give them the chance to provide input on decisions that speak to this mindset. These decisions will be (and should be) unique to your family. Your children and grandchildren may be bolder, more conservative or more blue-sky in their thinking than you’d expect, depending on how their experiences have shaped them. It’s important to cultivate a culture where all opinions are heard, respected and acted upon.
Astute financial advisors understand that family leaders are more concerned than ever about the long-term welfare of their family members. Wealth managers with a holistic approach can be helpful in facilitating family meetings that are forward-looking in scope and educational in nature.
“In a post-pandemic world, families will look to make up for lost time. They will be even more focused on the success of their children and grandchildren and the time they have together,” suggests Larry Miles, president and CEO of Freestone, a multibillion-dollar RIA.
3. Determine Who Will Manage Your Estate and Invest in Professional Help
There are often a number of moving factors when it comes to estate planning. As a former wealth manager, I know the intricacies involved in getting everyone confidently on the same page. A foundation of trust built on a strong common value system among your family members is ideal, but managing estates of significant wealth and complex trusts requires seasoned experts. Confusion caused by incomplete or poorly drafted legal documents can be costly, both financially and emotionally.
Richard Patterson adds: “A professional team that you trust and have confidence in is important. Your estate planner, investment advisor, CPA, insurance professional and successor trustee (whether that be a family member, trust company or private fiduciary) should be in place and have the ability to coordinate with one another at the time succession is necessary.”
It’s not just the big-ticket items that matter when it comes to inheritances. Personal possessions are particularly prone to cause problems among heirs because these represent their most cherished family memories. Consider asking your loved ones in advance which items would be most meaningful to them as you are deciding who will receive what. You may be surprised. The smallest items can sometimes carry the most meaning.
Having a contingency plan, including documented successor trustees, is key. Knowing that you have a “second-in-command” (or multiple) to execute it has never been more important. Rather than being viewed as unwanted gatekeepers, skilled professionals can be collaborative partners to ease the burdens for your heirs.
4. Tell Your Story to Those You Love
I can’t stress enough how important it is to communicate why you make the decisions you do about money. Not only is it a way to express what’s important to you, but it also gives your family time to address potential misunderstandings before they create lifelong rifts.
On my podcast, Money Stories with LDT, I ask all my guests to tell me their first money memory. Whether they offer examples of learning sound money skills at a young age, or how financial struggles caused stress, it is clear that everyone has a money story, and it begins with our families. You can try this in your own life using resources like StoryWorth.
Your wealth is about so much more than what you own. Don’t you want to pass on that “wealth” as well? Convene family meetings to encourage “money talks” in your family. Consider writing a letter or making a video to get the dialogue going. Whatever method you choose, now is the time to start.