‘Tis the Season: Year-end planning that doesn’t lead your clients down the road to conflict

By Patricia M. Angus – Originally published on Wealth Management.com in December 2014. 

Year-end planning that doesn’t lead your clients down the road to conflict.

Last month, I wrote about family business feuds and how they could be prevented more easily than people might expect. While some families might not mind public attention, most families believe there are better uses of their time and resources than facing each other in court. Now that Thanksgiving is behind us, and the holidays are in full swing, it seems a good time to continue focusing on this theme. What good is family wealth (financial or otherwise) if it harms the family and/ or tears it apart? More specifically, what can advisors do beyond the usual year-end planning to help families stay intact? For most families, the goals are far broader than financial. The planning process should be expanded from the start.

Expand Year-End Planning

Many firms have prepared and will be sending year-end tax and investment planning tips that will be quite beneficial for clients’ families. Advisors will be recommending that clients use their annual exclusion gifting opportunities ($14,000 per person) and perhaps transfer assets to younger generations to minimize potential estate taxes (especially because the exemption amounts could go down from their current all-time highs. Undoubtedly, many advisors will recommend that clients consider charitable giving either directly or through vehicles controlled by family members (most notably, private foundations and donor advisor funds). These are all a great start. In addition, advisors could recommend that clients look in the mirror and ask about the relationships they have with each other. Before, or shortly after, implementing a tax strategy, it would be wise to call together the family to discuss the consequences of that strategy. How will the recipients handle it? Are they prepared, and have they had input into its creation? Because the success of such plans will ultimately depend on how they’re used and incorporated into the lives of family members, this discussion should be a part of the process from the beginning.

Deepen the Concept of Charitable Giving

Often, family philanthropy is raised as a way to “keep a family together” and/ or to secure the family’s values across generations. When raising the idea, an advisor should also ask about current practices and get a sense of whether group giving is appropriate for the particular client family. Given the reality that values tend to evolve across generations, charitable giving is often where the clash occurs. If the older generation truly wants to share its generosity with younger family members, it must be willing to accept that their ideas might differ. The advisor, often with the help of a skilled facilitator, must help the family focus on the values they hold in common. If not, they might inadvertently be setting the family on a course of conflict that could be avoided. The old saying “charity begins at home” is trite but true. A client who wishes to give as a family must genuinely want to gently and kindly include other family members. There are many past examples of control that formerly was exerted through control of a family business or trust being transferred over to family philanthropy. The advisor can help a client foresee potential issues and perhaps cut them off at the pass.

Bring in Additional Expertise

Private wealth management is as competitive today as it’s ever been. There are more new players and overlapping business models and delivery. The incentives to refer out and to collaborate seem to be evaporating as a result of these developments. However, an advisor who recommends that a client focus on planning at this time of year must anticipate and take some responsibility for collateral consequences. Fortunately, resources beyond the traditional models are now more available than ever. Family meeting facilitators, wealth counselors, inheritance experts and mental health experts are making progress in understanding the issues at hand. Advisors who admit that there are issues beyond their expertise and find ways to bring additional expertise into the fold are more likely to see their clients reap the successes of their year-end planning.