Welcome to Financial Advisor IQ

Estate Planning: You Almost Have to Trick Clients Into It

By Murray Coleman September 29, 2014

When a client couple with a multimillion-dollar portfolio mentioned they were about to go on vacation overseas, UBS advisor Jonathan Burkan took advantage of the news to bring up estate planning. He suggested it might be smart to set up a trust for their children — just in case, heaven forbid, anything happened to the clients during their adventure.

The kids were still in college, so the couple hadn’t been particularly interested in discussing inheritance, according to Burkan, whose New York-based practice manages $150 million. But this time, the FA says, a light seemed to go on in the parents’ eyes: “The trip became a metaphor for the importance of inheritance planning.” Starting a dialogue with high-net-worth clients about passing on their wealth can be difficult, experts say. A new UBS survey that polled more than 2,800 adult investors finds that parents often feel awkward bringing up how much they plan to leave to heirs. In fact, nearly half of wealthy parents responding hadn’t even broached the topic with their children.

Inheritance is almost a taboo subject in some HNW households, says Mike Swenson, an advisor at Merrill Lynch in Wayzata, Minn., whose team manages about $800 million. In particular, he says self-made millionaires who grew up in working- or middle-class homes can be taciturn on the topic. “They often don’t feel comfortable talking about finances to anyone in their family but their spouse.”

With these clients, Swenson recommends taking “baby steps” — and in some cases taking a roundabout route to estate planning. For example, his team recently ran an analysis for the 60-something-year-old owner of a local construction company, to project the future value of his family’s seven-digit nest egg. Swenson took into account potential estate tax bills and modeled scenarios for his passing away at different ages, up to 100. No matter how long the client lived, the conclusions came out the same — if he did nothing, the IRS would collect half his net worth. “It really opened his eyes to the need to start thinking about how he was going to handle passing his wealth to the next generation,” Swenson says.

Mike Swenson
Fear of giving their children a sense of entitlement is a hot button with wealthy parents, according to Swenson. He calls this “the spoil factor” and tries to get parents to put a number on how big a windfall they feel comfortable giving to heirs.

Recently, Swenson met with the chief executive of a financial-services company who decided the spoil factor wouldn’t kick in until after $2 million — and arranged to leave that amount to each of his three adult children. The total represented just 6% of his estate. “I knew this family’s value system, so it made perfect sense,” says Swenson. “Their children were all living very independent lives.”

Lori Sackler, a Morgan Stanley advisor in Paramus, N.J., whose practice manages about $200 million, sometimes finds it helpful to bring an outside family therapist to mediate parent-child discussions about inheritance. “When clients decide to give unequal shares of an estate to their children, there can be enormous conflicts,” says Sackler, author of The M Word. “In those situations, conversations even in the most tightly knit families can become very emotional.” Even in less heated circumstances, she often finds that offering to sit in on family meetings can prove a reassuring support mechanism for jittery parents. Ideally, though, Sackler aims to get clients talking on their own to their heirs about estate planning — well before they even retire.

“There’s close to a 70% failure rate in transferring wealth effectively across generations,” she says, “and the biggest reason is because family members just don’t know how to talk to each other about money.”