When it comes to estate planning, wealthy families don’t worry whether there will be enough money for the kids but whether the kids will be responsible enough to handle the money.
Playing a role in preparing heirs is a key way for advisors to distinguish their businesses, be more visible among centers of influence, get client referrals and maintain heirs as clients.
Each year over 7,000 estates worth more than $20 million transition from one generation to the next, but while estate planners are 98% effective at preparing these assets to be passed on, that preparation goes to waste in 70% of the cases. (In some 20% to 25% of wealthy families, the heirs end up suing each other).
And take note: 92% of heirs switch advisors soon after getting their inheritances.
“Post-transition” family problems arise because while parents, advisors, estate lawyers and accountants spend a lot of time preparing the assets for the heirs, too often “no one is preparing the heirs for assets,” says Vic Preisser, the founding director of the newly minted Institute for Preparing Heirs in Pasadena, Calif., and co-author of Preparing Heirs. “We handle the estate plan, but no one is preparing them to handle the assets long-term. Advisors get the value of the assets transferred, but because the family didn’t transfer its values, that’s where it falls apart.”
The Institute for Preparing Heirs is based on the research of The Williams Group in San Clemente, which has been coaching wealthy families for decades.
The Institute offers advisors a three-step process to involve the whole family group in the estate planning process. The three steps are:
1) Awareness, making the parents aware of the risks to their plans;
2) Assessment, determining if their particular plan/family is at risk; and
3) Action, addressing issues of trust and communication among family members, defining the roles of the heirs often through a family mission statement and creating a post-transition strategy for the heirs.
The Institute offers a preliminary wealth transition checklist that gives advisors and families an idea of how well prepared the family is to have a successful transition. This, in turn, leads to a 50-question assessment that each member of the family must fill out confidentially.
But, here are the 10 Yes/No questions from the preliminary assessment taken from “Preparing Heirs”:
1) Our family has a mission statement that spells out the overall purpose of our wealth,
2) The entire family participates in most important decisions,
Such as defining a mission for our wealth,
3) All family heirs have the option of participating in the management of the family’s assets,
4) Heirs understand their future roles, have “bought into” those roles, and look forward to performing in those roles.
5) Heirs have actually reviewed the family’s estate plans and documents,
6) Our current wills, trusts and other documents make most asset distributions based upon heir readiness, not heir age,
7) Our Family Mission includes creating incentives and opportunities for our heirs,
8) Our younger children are encouraged to participate in our family philanthropic grant-making decisions,
9) Our family considers family unity to be just as important as family financial strength, and
10) We communicate well throughout our family and regularly meet as a family to discuss issues and changes.
If you clients have seven or more “yes” answers, they can consider themselves very similar to those families that have successfully transitioned their wealth. Four to six “yes” answers, the historical data indicates that a reasonable investment of time and family effort could pay big dividends with respect to ensuring that a successful wealth transition takes place.
Less than four “yes” answers has historically been an alarm bell for families, indicating that their transition plan is incomplete and that the successful transition of their wealth is at risk.