Have you prepared to pass on your wealth to your children? If not (and take it from us!), it can lead to serious family feuds and even legal consequences. We don’t want this to happen to you. Let’s make your family’s relationship stay strong. In this episode, Zacc Call and Laura Hadley highlight practical solutions to prevent family issues caused by wealth, including open communication, fair estate planning, financial education, and maintaining strong family values. They also discuss the pitfalls of strange oversight or power relationships and the importance of clear communication. Zacc and Laura discuss: How to initiate effective, efficient, and open communication with extended family when executing financial decisions, how to mitigate the fear of taxes and eliminate its effect on your family’s ability to make sound decisions, the risk of making your trust too specific–tips to make your trust sound and clear! Why some families fail to make a CLEAR and FAIR estate plan–how you can avoid these mistakes and so much more.
[00:00:00] Welcome to The Financial Call. We are financial advisors on a mission to guide you through the financial planning everyone should have, whether you're doing it yourself or working with a financial advisor. These episodes will help you break down complicated financial topics to practical, actionable steps. Our mission is to guide motivated people to become financially successful. Welcome back to The Financial Call. This is Guided Path episode six of season five, the estate planning season. We're wrapping it up today with preventing a family disaster. The reason I laugh is because this one's hard for us because we're more numbers, facts, people, and this one's kind of tricky because it's all about people and feelings and emotions. It can be a little bit tricky, but we've worked with people and. We've found that there are a lot of mistakes when it comes to estate planning that can cause a lot of hassle and grief, and we hopefully have some solutions for it as well. So today we
[00:01:00] wanted to talk about some of the common mistakes with estate planning, passing on your wealth to your children, and hopefully some solutions for you. It's hard because sometimes the mistakes and the solutions are both subjective. Oh, for sure. Right? Because some of these mistakes might actually be a good thing in your family situation, so please listen and use what you need and what helps you. And then if you think that wouldn't work in my family, then you have to take a step back and think, maybe you're right. Maybe it wouldn't work in your family or. Maybe you need to rethink how you view your family. Be willing to look at yourself a little bit here too. I think that's hard, but look at yourself a little bit and think about what might work for your family and what might not. Let's dive into some of the mistakes. Now, actually, before we dive in, after, this is business owners, is that right? Yes. So we have estate planning, so we are on season five. Season six is business owners. So we will do five episodes just around business owners. Super excited about that. I think business
[00:02:00] owners are oftentimes, Some of the least served in terms of Oh, for sure. The financial planning portion. Cuz most of the time they don't have money to invest because of throwing it all into their business. Yeah. And so they're, they don't get a lot of attention from financial advisors. So I'm hoping that some of these strategies and ideas really help them. So preventing a family disaster, some of the mistakes, well, mistake number one is lack of making decisions always. I feel like with anything with financial planning, it's lack of a plan or lack of making decisions is the biggest thing. So even if you take a few pieces from today, Just try to make some sort of plan. I think that's gonna save you the most and most all of the basic planning that is done is not what's called irrevocable or irrevocable. It's not permanent. Most of it you can adapt and change, so just get started and know that you can make adaptations to it. You can change beneficiaries, you can change language in your trust. Typically, an estate planning attorney will help you. Make those changes
[00:03:00] pretty quickly, so try to let that get you over the speed bump of like, oh gosh, I don't want to ink this or put this in stone. It's not quite like that now once you pass away. Yeah. It becomes pretty concrete, but during your lifetime you have plenty of opportunity to make changes. So lack of decisions is the mistake. The consequence of this is, gosh, if you leave it up to your kids to make decisions, I think a lot of people have a lot of faith in their kids' abilities to get along with each other, and I believe that that usually is fine. But when you add the in-law factor in there, It gets way more complicated in laws ruin. Everything they do in laws are great. I'm kidding. Um, but you basically, you think if you have five kids and they have history with each other, they have a love that's unconditional for each other. Their spouses don't, they don't have that history. They didn't grow up together. I think it's naive to
[00:04:00] think that kid one and kid one's spouse are gonna just. Play super nice with Kid four and kid four's, spouse, and we see the lack of decisions and lack of clarity causing a lot of problems because you're relying on all of those different personalities to come together. Another common issue is strange oversight or power relationships. We see this, I've run into a case where an uncle and an aunt are in charge of niece and nephew's money. That's okay. Maybe depending on the family situation, but you gotta be careful with that. Let me give you another example. I ran into someone who said the successor trustee of my trust. Is going to be my first kit. Okay? I'm gonna go through this slow, because on the surface this does not look like a problem, but after the parent dies, it springs into a problem. So let me explain what I mean. So grandma and grandpa want to fund their
[00:05:00] grandkids education. They have rules in their trust that say, When the kids reach 18, they can have X amount for undergrad and X amount for masters and doctorate degrees. So that means that putting that language in the trust requires the trust to exist well beyond your death. You can't just have that trust all. Distributed out to people because then the trustee has a fiduciary responsibility, meaning they have a responsibility to do what the trust says above anything else. So they have to keep that trust alive and intact until the moment that the trust language allows for distributions. And in that case, It only allows it to go for education and the kid's only eight years old, so there's a decade that needs to go. Right? So let's say this family has 20 grandkids across four different families, and the first child of that middle generation is the trustee for the successor of the
[00:06:00] main trust that mom and dad set up. Mom and dad pass away. The oldest kid steps in as the trustee. But they realize, holy cow, I have to keep track of 20 different sets of rules for the ages of all of these grandchildren, and I know that half this trust is set up to go to the grandchildren. So what I'm gonna do is I'm gonna create 20 different accounts, which is what I would do. By the way, I'm gonna create 20 different accounts. I'm gonna put the money into all those different accounts, and then when this eight year old reaches 18 in 10 years, I'll let them have the first tranche. I'll let them have the first distribution. So I don't know if you realized here, but that kid has to ask the oldest uncle. For money for school, and mom and dad might feel weird about that. The grandkids. Mom and dad. Yes. I'm sorry. Good point. Well, the brother and grandma, grandpa might feel bad about that too, right? Yeah. They might think that's weird, but they didn't intend for that to happen. They just said, well, the oldest son is the trustee, and then all the grandkids get all the money. So they'd have to go in and
[00:07:00] say, Actually upon our death, I want this to spring out into multiple trusts with their parents being their trustees. So just understanding a little bit about the decisions you're making and the consequences of that in the future is important. So weird oversight relationships definitely happen. I think the next common mistake that we see is unclear communication or lack of communication. The parents aren't talking to their kids at all about what there is, what their plans are and why. I think the why behind your rules is powerful, you know, if your kids can understand why you're doing something. I talked to a client the other day. She donates regularly to a pretty unique charity. And it was kind of odd. And then she explained, well, I had a grandkid that had this problem, and so I contribute to this specific charity for kids that have that same problem. And oh, okay, that makes sense why you do that. So I think just understanding the why can solve a lot of issues. I think people pass along the rules, but don't pass along the values. You
[00:08:00] send the rules to your kids and if you send them without the values, The kid will have a really hard time understanding the reasons behind it and actually feeling comfortable following it. The next issue is letting taxes drive decisions. We've talked about this a few times before, not letting the tax tail wag the dog. For example, somebody might not want to sell an investment or liquidate an investment because they have a lot of capital gains. Tucked inside of there, and when you sell it, you realize those gains and you're gonna owe taxes. Whereas if you just held onto that investment for a long time and you pass away, you might be able to get a step up in basis. We talked about this in previous episodes, talking about capital gains. Your kids likely can avoid paying taxes on that growth if they wait until death. And so some people might be afraid to sell that investment to go on a trip and make memories with their grandkids because they want that step up in basis. But in the grand scheme of things, It's probably worth it just to realize some of those gains and make memories and
[00:09:00] enjoy your inheritance. With your children, not just giving it to 'em once you're gone. Yeah. Imagine someone, I've seen this all the time. They own a stock in their portfolio that has gone up like crazy and they're like, ah, I wish we could go and do these trips. Or, I wish it was like, and I'm looking at them like you can. I'm like, well, if I sold that stock, I'd have to pay some taxes. They're like, yeah, and every day I go to work and I have to pay taxes on the income, but it doesn't mean I'm not coming into work like totally. Anyway, people get a little bit too paralyzed by the idea of having to pay taxes, which I get it. I hate taxes as much as anyone, but you have to be okay because it's your choice. Are you going to create the memories? Are you going to accomplish the goals? Are you going to support your values? Or are you just going to be paralyzed due to having to pay a little in taxes? This one goes back to what I was talking about earlier. If you put too much or too many control provisions
[00:10:00] into your trust, if. It adds so much complexity. So we see this, and I'm just gonna throw my own gender under the bus here. Like for whatever reason, it's men. Men. They were like, I want them to only use the money in these cases and in these scenarios it's gonna be really strict. And we talked about it earlier in the example of education. I think that's a great thing to support, but you have to be really careful with that because the more control you exercise beyond the grave. The more complexity you have introduced and the successor trustee, the person in charge of the money afterwards may be in charge of executing on all of those requests. And that can be hard. It can be really hard. Well, not only might it be hard, but your trustee might say, forget it. I'm not following these rules. And there is no trust police. Nobody's gonna go to your trustee and say, Hey, John wanted this and this and this to happen after he passed away, and you're just given the money away for whatever. So you have to also
[00:11:00] understand the balance of the beneficiary has to be able to understand and execute the rules, and you have to be able to exercise enough control that it touches on your values, which is why I go back to. It's more important that your trustee understands your values than every single little rule, because it will give them the framework for making decisions rather than the letter of the law and everything. So, So those are the biggest mistakes we see, and these are not mistakes that we've read somewhere. These are the mistakes that Laura and I sat down and said, what have you seen with your clients? This is what I've seen. Let's go back through 'em real quick. Lack of decisions or not having a plan. Strange power or oversight relationships. Three would be unclear. Communication or the lack of communication, meaning you have a plan, no one understands it, and you haven't expressed how it works to anybody else. Four, letting taxes drive decisions, and of course, taxes
[00:12:00] are important. It's important to minimize it where you can in order to further support your values and your goals and your life and your family. I get that, but when taxes paralyze you, that's a problem. Five. Avoiding too many control provisions because when you're writing those documents, it feels like, sure, let's throw that in there. Sure, let's throw that in there. And it's just the stroke of a pen and you don't understand how the stroke of a pen creates 20 trusts for your kids and grandkids that are executed and have to be taken care of and are a little bit more expensive to run. So those are the biggest issues. We're gonna move on to some solutions. Laura, anything else that you would add to that? No, I think that's great. Obviously there are other things that will come up, but those are some of the biggest things that we see before we get into solutions or just family dynamics. Let's talk for a second about that. Every family has a ton of differing personalities. I think a lot of people listening to this will probably think, yeah, easy for you to say, you don't know how much my two kids hate each other, or something like that.
[00:13:00] I think it's important for you. To understand that your adult children are adults. They have their own personalities, their own decisions, and as much as we wish that we could, and I'm saying this, From an observation standpoint, obviously my kids are young, they're teenagers, and I'll probably eat my words cuz I'll feel the exact same way as most of our clients. But from a third party perspective, I see too many of our clients who are in their fifties, sixties, and seventies, probably saying yes a little bit too frequently to their kids and. They sometimes make the problems worse because of inequality across kids, or they make the problems worse because of inconsistency. They say This is what they value and this is where the money will go, but then they may just hand it out or spend it wherever. And so I'm just saying we as parents can be part of the problem. But at the same time, you can't fix and change those kids at this point in their thirties and forties. They
[00:14:00] have their own lives, and so some of this may not work, but we're gonna throw out some solutions anyway, and you have to try to apply it to your family. Wealth does create happiness up to a certain level. Wealth makes you more comfortable as you have more and more of it, but there is a diminishing return, meaning you get a lot of happiness. When you first start making more income and have a lot of, when you get out of the stress zone. Exactly. It's a great way of putting it. I like that, Laura, out of the stress zone when money takes you out of the stress zone. Of, do I have enough to survive? That is where it really has the greatest impact on happiness. And then it can actually help support a lot of good, but it can create problems and create issues, which we've talked a lot about. So the first thing, we're gonna view four different ways or topics that you should consider to prevent family issues caused by wealth. First, it is important to have honest and open communication with your family. About your wealth and your plans for its distribution. So they need to
[00:15:00] understand and have expectations about what will happen, and you need to avoid misunderstandings because that's where feelings get hurt. It's where people expect something and then something different happens. If the events and how they actually play out are similar to the expectation you set, you have a much better chance at maintaining positive feelings throughout the process. Some people are tight-lipped about how much they have. They don't want their kids to know Exactly. They don't wanna discuss numbers. And I don't think you necessarily have to. You can. Absolutely. And I think that's a great thing too. But I think just talking generally, this is about how it's gonna be distributed. This is why, again, adding the why behind it, the value. But wouldn't you say, Zacc, that it's very, you don't have to give exact numbers. Totally. You could give the structure. You could draw it on a piece of paper. You could give the reasons behind that structure, I mean, without any numbers whatsoever. You could even use percentages if you wanted to, so they can think it's a million dollars or $50 million and they won't know. You
[00:16:00] could do it however you want. You don't have to put in the numbers, but this goes back to you should explain why you're making different decisions with your money. Upon your passing or during your life, and that will tell the kids more than what is being given. When I talk about open and honest communication, you should communicate the why. Start there. Simon Sinek as well. Start with why, and then he talks about how that leads to everything else being good because you can make decisions based on that. Why? The second thing is set up a clear and fair estate plan. Easy. Fair. Easy. Fair is so subjective. Absolutely. It's fair. Based on need or based on mathematical equality. Exactly. I was talking to a client the other day and. She knows a daughter who maybe doesn't need as much is gonna be upset because another sibling has needed a lot through life and she thinks that that younger sibling should get less of the inheritance cuz she's really received a lot during her life. But the mom, you know, the owner was thinking, no, I want her still
[00:17:00] to receive a fair distribution because the older sibling doesn't need it. I think that's where you need to evaluate your own values and then again, pass those values onto your kids. If this is fair to me and this is why. Yeah. I think that if my parents came to me and said, Hey, Zacc, seems like work's going okay for you, we're gonna give this money to the rest of them, I'd be like, oh, that's interesting, but within a couple minutes I'd be fine with that. Be like, you're still gonna let me have your guitar? Like, that's all. That's all I care about. Write me down for the guitar, please. That's all I care about. That's the guitar I learned how to play on, but. That's all I really care about. I mean obviously all I really care about is them and if that didn't happen, that would be fine as well. I just joke cuz he is already told me that. Okay. But no, but I'm saying like if they set that expectation, I think it would be a lot easier to handle and be fine if that's the way they felt if come compared to finding out after they passed away. And think about that too. You're giving yourself the opportunity to
[00:18:00] share the nuance that comes along with your decision making process. If you do it during life, if you wait until death, they get your final decision without any of the nuance associated with it. And you can get your kids' opinion. Maybe they didn't know you wanted the guitar, they were gonna give you this equal percentage, and you're like, well, I actually don't really want that. I would love the guitar. I'd love, right, the engagement ring, cuz that has sentimental value to me. Or it's interesting to talk to your kids and see what they value from you. Okay, so the next one, the third one is educate your family members about financial management and responsibility. It's funny, I actually see clients throw this up at the top. They do this one first. They almost want to put their kids through some sort of bootcamp, like financial bootcamp before they trust them with the information. I'm not convinced that's the way to go because. I understand the logic. They're trying to get their kids prepared for the information. If you layer in the information at the right time, let's get specific. So
[00:19:00] if you don't give them all the numbers right out of the gate, and you don't talk about investment philosophy right out of the gate, you talk about what matters to you and what good you hope happens as a result of having worked so hard with money. Anybody can understand that you don't need to understand stocks, bonds, real estate, private equity, all of that in order to understand what someone cares about. So that's why it's important to start there. So, And I do think this is accurately listed as third, where they need to have first open and honest communication. And then second, set up that clear and fair plan. And now third, now that they understand your why behind it, and a little bit more about what you're hoping to accomplish, now we can start to talk about the education around, okay, how do investments work? Okay, how do taxes work? And how do estates get re-registered and probate and all of that. That's just not the most important thing, but for whatever reason, a lot of families focus on that first.
[00:20:00] So I would say be cautious of that. I think people worry that they think their inheritance is gonna ruin their kids, that they have no desire to work hard, and so maybe that's why they put it first. But I like that talking about the why behind it. I think that's great. If you're thinking like, gosh, I can't remember all these. We're gonna review at the end here. We're gonna go through all four of these again at the end. But the fourth one is maintain a strong sense of family values and traditions that transcend wealth. So you want to encourage family gatherings to encourage shared experiences. Charitable giving can be a big part of this. If you put together, maybe you do have certain causes that you really want to support, having your kids be involved in researching and funding those, or executing on your charitable giving, that can be a great way for them to get started. In actually category number three, around educating them. It also helps them to understand that some things are more important than just having money, that some things are actually worth spending the money on.
[00:21:00] So that's just an idea. It doesn't have to be charitable giving. It could be through family gatherings and shared experiences. You gotta be careful with this too. These are adult kids with kids who have lives. You have to be somewhat respectful of their time as well, and make sure that you make it happen whenever you can. Something else to understand. If you really care about it, you probably will have to spend money on it, meaning your kids are going to have different financial situations. You will probably have to fork out quite a bit of money, either for the hotel rooms or the activities or the plane tickets or whatever it is. To get everyone together. If you eliminate the cost issue, then the only other issue typically to resolve, well, there's two more issues. One, can your kids hang out together without getting in fights? And then two, can you get them on the same schedule enough to be together for those periods of time? There's money and then relationship and time. Can you make those three things work? If you solve the money side of it and you work
[00:22:00] hard to keep family relationships, then it's just calendaring after that. So in summary, preventing family issues caused by wealth requires one, open communication, two, fair and clear estate planning, three, financial education, and four, a focus on family values and traditions. And I really do think if someone walks through these steps that they're going to find that having money. Is a positive to their world and to their life, rather than something that created animosity or difficult relationships and wedges between their family members. And then the other issues, we talked about the mistakes before. Those are a little bit more technical, like all the little nuances of who you set up to be as trustees and things like that. That's where you're estate planner and we think us as good wealth advisors should step in spot a few issues. Maybe help you reword things or understand
[00:23:00] the complications that you may be creating by control, things like that. But your responsibility is to work through these four things, the communication, the fair and clear estate planning, the financial education, and then focusing on family values and traditions. If you can work on those four, a good wealth advisor can help you with the technical side and you should be off to the races. And don't be upset if not everything works cuz people are people. They can make decisions for themselves super hard. Right. What, what else would you say, Laura, before we wrap up? Nothing. I think hopefully that was helpful. You know, the whole estate planning season, some of it applicable to everybody, some of it only applicable to some people, but just do your best. There's some tools for you to get started and join us next season as we dive in for those business owners. That would be awesome. Thank you. This podcast is intended for informational purpose only and is not a substitute for personal advice from Capita. This is not a recommendation
[00:24:00] offer or solicitation to buy or sell Any security past performance is not indicative. Or for a future results, there can be no assurance that investment objectives will be achieved. Different types of investments involve varying degrees of risk, including the loss of money invested. Therefore, it should not be assumed that future performance of any. Specific investment or investment strategy, including the investments or investment strategies recommended or proposed by Capita will be profitable. Further Capita does not provide legal or. Tax advice. Please consult with your legal or tax professional for advice prior to implementing any strategies discussed during this
[00:25:00] podcast, certain of the information discussed during this podcast. Is based upon forward-looking statements, information and opinions, including descriptions of anti anticipated market changes and expectations of future activity. Capita believes that such statements, information and opinions are based upon reasonable estimate and assumptions. However, Forward-looking statements. Information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward looking statements, information and opinions.
[00:26:00] Opinions. Registration with the C S E C does not imply a certain level of skill or training.