Give the Gift of Financial Security
It’s a scene familiar to many of us: extended family talking and laughing over the holidays, sipping mugs of cider or hot tea. For those reaching their golden years, or perhaps currently in them, the seasonal warmth and sense of unity imparted by such moments may evoke thoughts about family legacy. How do I want my family to be remembered? Have I set up the younger generations for financial and emotional success? Is there an estate plan in place, and how do we discuss it?
Susan Hirshman, director of wealth management with Schwab Wealth Advisory, Charles Schwab’s premier wealth management service with approximately $130 billion in assets, says that the holidays can be an ideal moment to start or refine such plans. For high and ultra high net worth families, in particular, time is of the essence because estate and gift tax exemption amounts are set to be reduced significantly starting in 2026. (The Tax Cuts and Jobs Act of 2017 temporarily doubled the exemption through December 31, 2025, when it is scheduled to “sunset.” As the estate and gift tax exemption is indexed to inflation, it has increased annually since then and will reach $12.92 million per person in 2023.) Patriarchs and matriarchs may want to consider gifting now through 2025 to lock in the higher exemption amounts.
When thinking about your estate plan and wealth transfer, Hirshman believes it’s important to consider your timeline especially because life spans have increased. On average, women who are 65 can expect to live to age 86 and men to 84. This is a typical gain of three decades over the last century. As such, older generations may want to consider how to provide for their families during their lifetime as well as after, because inheritances may otherwise arrive in their children’s lives later than expected.
Of course, multi-generational estate planning, which is in some sense about mortality, can be a difficult topic to broach with loved ones. Hirshman’s 25 years of working with clients have given her insight into the ways to do it most effectively. Several weeks prior to an in-person group discussion, she suggests letting family know it will be happening and sending participants a set of questions in advance. This is an opportunity to not only consider your values and beliefs about wealth but also the benefits you envision for future generations. Some questions may focus on fundamental feelings about the use of money while others examine how deeper priorities can be reflected in your plan. What is the purpose of wealth? How can I use it effectively, both now and in the future? Also decide on a timeframe for the discussion (Hirshman suggests ninety minutes or less) and have stated goals. The fruits of the conversation will allow you to create a “family wealth mission statement”—a summary that encapsulates the overall family value system and communicates the wealth transfer vision and purpose.
Anticipating strife or possible misunderstandings? If a family-only discussion seems challenging, Hirshman recommends a different approach, which may include an outside party. Some wealth management and advisory firms, including Schwab, have a family dynamics group that can help, in addition to a range of specialists across different aspects of financial and estate planning. A scenario that often requires a more careful approach is when parents want to distribute assets to children in a “fair but not equitable” way, as some advisors put it. In this situation, Hirshman suggests having a separate conversation with the sibling who has potential to feel slighted. “Parents often decide that a child with more of their own money doesn’t need as much–or any–of the inheritance, but the child with fewer means does. In these situations, parents might talk to that wealthier child and say, ‘this is what we’re thinking. This is why. What are your thoughts?’” Such open dialogue can create smoother outcomes.
Focusing on both the smaller, potentially more emotional, elements of the plan, in addition to the larger items is an important part of the process, according to Hirshman. “In my own family, there was a five-dollar picture of Einstein that my father had purchased at Walmart. When he passed, we all wanted it because we had a strong emotional connection to it.” Because he hadn’t specified which child should receive the memento, she says, an emotional debate took place. “We all get along, and it worked out, but you could see how these small things could lead to strife and become larger issues.’”
During the actual conversation with family, include everyone, not just the loudest and most vocal members, Hirshman advises. Quiet voices can be the most meaningful. She also encourages both parents to actively contribute to the discussion, even in situations in which one parent generated the majority of the wealth, because this creates a more equitable dynamic and adds depth to the talk. “These discussions are not only about the money. They’re about the emotional and personal side of planning. Sometimes the mother has more insight about the money part of it and the father has more insight into the emotion, or vice versa.” She also advocates parents share their philosophies of giving and spending when it comes to splurges (and frugality) and present a united front during this meeting.
After the discussion—or discussions; multiple conversations are sometimes needed—follow up with a written summary. This family wealth mission statement can be composed by a family member or professional, and it should be sent to all participants. While not a legal document, Hirshman says it can and should be shared with experienced financial and estate planners to help align and guide the family through future legacy planning.
The formal details of each estate plan, of course, will depend on factors such as the types of investments the family holds (is your family’s wealth heavy in real estate holdings? Equities?) and the types of accounts that make sense (Are certain trusts favored? Is charitable giving paramount?). And the legal document and the plan itself are important—but bringing the family together for meaningful dialogue should not be underestimated, according to Hirshman. “The process of creating the family wealth mission statement can have a tremendous impact on sustaining multigenerational wealth, maintaining family harmony, and strengthening the family legacy.” It might be said that, at this time of the year, planning for the health of each other’s wealth is the most generous gift of all.