How a UBS Exec Gets Families to Open Up About Wealth Transfer

Coming into a substantial inheritance often hits wealthy parents’ kids “like a meteorite, knocking them over” and kicking off the sad phenomenon of “shirtsleeves to shirtsleeves in three generations.” To prevent that damage and destruction, ultra-high net worth clients need to prepare offspring for their momentous wealth transfer.

So argues Judy Spalthoff, a UBS executive director, in an interview with ThinkAdvisor. She and her team facilitate family meetings aimed at averting the family fractures that inheritance can bring.

“We’re doing preventive medicine to make sure potential diseases of the family don’t happen,” says Spalthoff, head of the firm’s family advisory and philanthropy services.

For a variety of reasons, most wealthy parents fear having inheritance conversations with their children and avoid such discussions. The family meetings that Spalthoff recommends gradually ease into balance-sheet talk, focusing first on family mission, values and legacy.

The meetings also benefit an advisor’s practice in a number of ways, which Spalthoff discusses in the interview along with a specific technique UBS uses to encourage parents and children to open up and better communicate their thoughts and feelings.

She recommends convening families at least once a year to discuss inheritance, with a neutral third party running the meetings. At UBS, that’s Spalthoff, a member of her team, or the financial advisor. Often it’s the advisor together with Spalthoff or another from her group. The firm offers FAs how-to training workshops.

ThinkAdvisor recently interviewed Spalthoff, speaking by phone from her New York City office. She considers inheritance-preparedness meetings “a value-added service that clients probably didn’t ask for or know they needed” but which play an important role in the wealth transition process. This she differentiates from “wealth transfer.” The latter is an “event.” Wealth transition is an “evolution.”

Here are excerpts from our interview:

THINKADVISOR:  Why do wealthy parents avoid bringing up the subject of inheritance with their children?

JUDY SPALTHOFF: They’re afraid to talk about it because they’re not prepared to share the financial information — and the wealth inheritors aren’t prepared to receive it.

What do parents think will happen if they talk about it?

They’re afraid that [the children] will feel entitled or that they’ll become unproductive members of society, unmotivated because they won’t necessarily have to work. They sometimes think [knowing what they’ll inherit] will strip their children of purpose.

Why is it important for wealthy parents to have an open dialogue about inheritance and not make a mystery of the money they’ll be transferring?

If you haven’t communicated your intentions, you create opportunities for fracture within the family as well as for the children to be ill-prepared for the wealth itself — like a meteorite hitting and knocking [them] over. It all gets back to preparedness and making sure people understand the responsibility that comes with having great wealth and [to avoid] the animosity and breakup of family dynamics that [money] can create.

Is there a big difference between wealth transfer and wealth transition?

A massive difference. Wealth transfer is an event. Wealth transition is an evolution — preparing for that event with estate planning and making sure everything is nice and tidy so that you can transfer the wealth in the most effective and tax-efficient way.

Why is preparation so critical?

Research [“Preparing Heirs: Five Steps to the Successful Transition of Family Wealth and Values” by Williams and Preisser] shows that 60% of unsuccessful wealth transitions [stem from] lack of communication within the family, and 25% are caused by lack of heir preparedness. That’s why there’s [the unfortunate phenomenon of] shirtsleeves to shirtsleeves in three generations.

At what point in the meeting does UBS bring up the amount of money that will be inherited?

We’re not going to roll out the financial balance sheet or start talking about the trust [right away]. We think of this [process] as a dimmer switch: Before we get to the money, we’re going to turn on the light just a little bit and talk about all the other things that [families] pass on.

But it’s quite possible the children already know the extent of their parents’ wealth. How does that jibe with the dimmer-switch approach?

Yes, in this day and age, it’s really hard to suppress [such information] because of the “Google machine.” Children can just Google Dad’s or Mom’s name and see their [family’s financial heritage]. Or if, say, there’s been a major liquidity event, it’s probably in the news. There’s really no hiding [the amount of money]. So we don’t suggest they hide it. We do eventually get there. When, depends largely on the children’s ages and their maturity.