Max Asnas, the colorful founder of New York City’s Stage Delicatessen, also famous as “The Corned Beef Confucius,” philosophized:
“Money is something you got to make in case you don’t die.”
Yep. But what’s the plan for passing along that accumulated wealth — assuming you have any — after scarfing your last cold-cuts sandwich?
Estate planning has always been infused with emotion. But now more so, given the higher incidence of second and third marriages, and complicated blended families of yours, mine and ours.
It’s a tough topic to bring up with clients: Typically they’re reluctant to face their mortality, so procrastination is the operative word. For many, it’s simply taboo, strictly off-limits.
However, this is an area where advisors can step in to make a real difference in clients’ lives and the lives of succeeding generations.
“We’re best to bring this dialogue to the surface because of our intimate relationship with clients,” says wealth management advisor Jordan B. Walters, who heads a team of three at Smith Barney in San Jose, Calif., which manages about $850 million in assets.
“It’s a professional responsibility that can extend the bonds of the client-advisor relationship: good for the client, the family and for long-term business. We develop lineage with our client base, uncover assets and are able to do a better holistic job of wealth planning. It’s absolutely a win-win,” says Walters.
But high-net-worth older clients are often secretive about how much money they have and to whom they plan to leave it. This can result, post-death, in angry, resentful spouses and children once the assets are distributed. What then occurs are family battles, estrangements — even ugly lawsuits.
Financial advisors can help prevent this havoc. After all, who’s in a better position to advise the client to structure a plan that brings the family into the conversation, if not the process? This can not only avoid fights later but lead to bonding and family harmony while the client is alive.
Though some may argue, “Leave estate planning to estate attorneys,” the five savvy wirehouse FAs we recently interviewed disagree. “When you’re providing comprehensive advice around finances, estate planning [should be] second, if not first, on your check-list,” says Dan Ludwin, an advisor with Wachovia Securities, in Richmond, Va. He and partner Dalal Salomon specialize in high-net-worth clients with a minimum of $1 million in investable assets.
Under the SurfaceThe key to estate planning that will make, not break, families: Encourage client openness in discussing intentions with spouses and children while the clients are still mentally fit.
Advisors should broach the subject as early as the initial interview. Sarah Cammiso, a Merrill Lynch advisor in Tysons Corner, Va., whose clientele is largely retired military personnel and folks in technology, says that, in her experience, most estate planning issues began with a financial discussion but “turned into something that had a much bigger human slant to it.
“The financial is the surface element that is actually driven by issues with the family. We uncover them by asking personal questions and drilling down to the more emotional needs,” she says.
Family harmony is one of the chief estate-planning themes addressed by the group of 40 FAs led by advisor Mary Ann Sisco, national director of wealth advisory, at JPMorgan Private Client Services, based in Chicago. Client net worth ranges from $1 million to $25 million or more. FAs often head off conflicts when, for example, distributions involve a closely held family business or summer home.
“Estate planning is the area where emotions absolutely run the highest. After a parent dies, things that have festered since childhood can come out…There’s usually a lot of memories and resentment that bubble up,” notes Sisco.
Distributions or lack thereof to ex-spouses or second or third wives are also potential landmines. Sometimes the new wife is shut out or, alternatively, biological children of the deceased feel gypped.
The way to avoid such painful scenarios is through thorough planning — paying close attention to details — and cultivating excellent communication with the client’s family, attorney and CPA.
“It’s really important to approach it as a team for the benefit of the family. Nobody on the team should feel adversarial because that can transfer to the family,” says Ami K. Forte, a wealth advisor with Morgan Stanley in Palm Harbor, Fla., who manages about $900 million in assets for ultra-high-net- worth clients.
Moreover, she says, where pre-existing hard feelings exist, it’s particularly important to document “every little thing of what [the client] wants to happen and who will control [the distribution] after they’re gone.”
One effective way to open the estate dialogue is to share real-life situations. “Wealthy individuals like to hear what other wealthy individuals are doing in their estate plans,” says Sisco.
She relates a case concerning a man who sold his company for more than $100 million, the bulk of which he planned to leave to charity. JPMorgan Private Client Services convinced him to discuss the matter with his adult children — who had no idea how much money their father had — in order “to communicate his philanthropic passion and try to instill it in them.”
“The children’s jaws hit the floor when they saw the total amount on the balance sheet. But it was good news-bad news,” says Sisco. “Good because their parents were incredibly wealthy; bad because they were giving it all to charity.”
However, after the initial shock wore off, the kids joined their parents in setting up a family foundation. Now, even a 5-year-old grandson has picked a charity: Ronald McDonald House.
Forte usually brings up the specter of high estate taxes. “If we don’t plan, the beneficiary is going to be the IRS,” she tells clients. “I’ve never run across anyone that’s worked hard their whole life and wants the IRS to be the inheritor.”
In sallying forth, first determine if the client wants to leave most of the estate to their family or to charity. After that, help them generate a dialogue with their spouse, children or both to try to avoid conflicts down the road. This also acts to retain the account and open new ones with family members upon the client’s death.
Cammiso says that in her practice, “more and more older investors are turning to their children to be part of the decision-making process. When they understand that the financial advisor has their best interest in mind, they’re much more likely to maintain the relationship than take the assets elsewhere.”
Potential Powder KegsSuch family meetings can uncover estate issues that are troubling to one or more member — and solutions can be sought. For instance, who will take over a family business?
“If the next generation has ownership in the ultimate decision-making,” says Smith Barney’s Walters, “most likely the [siblings] will support each other downstream.”
He recalls a patriarch — not his client — who’d developed a successful company. He had four children, one of whom with far more business acumen than the others. However, the client believed that if he left the company to that child, the others would “do what they could to ultimately bring the business down.”
A psychologist suggested that the four siblings meet on their own to come up with the best answer. Interestingly, they decided that the shrewd sib should run the business and that the others should be involved tangentially.
Another potential power keg is real estate, especially a second home that’s left to children as a group. Often siblings fail to reach agreement on whether or not to sell it. One solution: Those who want to keep the property can buy out the interests of those preferring to sell. In a different scenario, the house can be placed in a special trust along with funds for upkeep and taxes.