Family tradition, or the feelings or opinions of certain family members, can weigh more heavily than cold facts and calculation. Which you may think I’m about to advocate. In fact, it’s the other way around. Thinking about your family, your long-term, broader plans, even your philanthropic goals, can help you select more appropriate estate planning methods.
When most people consider wealth planning, they do so in isolation. It’s typical to find clients expect that we will know some technical solution for their needs. But we need to understand their needs first, and so do they!
For instance: Suppose you set up long-term funds for your children, grandchildren, or charitable donations, and these are structured so as not to be liable to inheritance tax. So far, this seems sensible and fairly simple.
Down the line, however, a well-planned estate may involve passing funds from one entity to another; when that happens, your estate executors need to consider the impact of having the small-cap manager in an account that will be passing revenue to another account.
These are questions we can answer, but our answers depend on a nuanced understanding of your long-term goals. These goals can change over time — few people have the same long-term goals at seventy as at thirty — so our understanding of them has to come from a long-term, ongoing conversation about the outcomes you want.
If this is the case, why doesn’t a serious conversation about family dynamics and long-term intentions form a part of every meeting with your financial advisor?
Sometimes it does. But where it doesn’t, the cause is a lack of understanding about how vital this long-term, nuanced perspective really is. Balanced against this is the host of highly personal reasons why families make the decisions they do. For example, an ongoing donation to a certain charity may be something a beloved uncle set up. Does it now best serve his reasons for setting it up? Perhaps that charity is near-moribund, or his interest in safeguarding stray cats would be better served by donating that money elsewhere. However, even though the family might see that, they hesitate to interfere with Uncle Michael’s arrangements.
Moreover, if families tend to hang on to relatives’ interests and passions, they’re equally swayed by their own. Someone who made their fortune in extractive industries might want to concentrate their portfolio in that area, regardless of information about what those stocks are doing or likely to do. (It’s not about whether those stocks will rise or fall, just that we all tend to gravitate to what we know.)
So what’s the solution? If possible, creating a family mission statement is an excellent way to establish what your family actually wants to achieve, making it far easier to match your requirements to the appropriate financial instruments.
Otherwise, just talking — not necessarily with your financial advisor — about what you want your estate planning to achieve in the medium and long term is a great way to get clarity on your goals. Bring that clarity to your estate planning and your advisor can guide you to far more success.