When it comes to estate planning 'you have to get to the core emotional issues' - MarketWatch

There is a massive movement of money going on right under our nose. It’s not illegal or unethical. But it’s fraught with peril.

More than $68 trillion is flowing from baby boomers to their adult children. This represents the largest-ever generational wealth transfer.

Financial advisers are often caught in the middle. They’ve helped their aging clients shift from wealth accumulation to wealth preservation.

The next challenge is legacy planning—and that opens up a can of worms.

A big part of legacy planning is trying to get different generations of a family to accept the patriarch and matriarch’s wishes. If the millennials—the adult kids—can buy into their parents’ inheritance plan, there’s less chance for rancor and recrimination when the money changes hands.

Calm, cool rationality is in short supply when some families address issues tied to cross-generational wealth. Sparks can fly.

Retirees will often ask their financial adviser to serve as a buffer to deal with the younger generations. As the kids clamor for information about their parents’ assets, the adviser becomes the point person.

Advisers may dread this part of the job. They didn’t sign up for refereeing intergenerational conflict.

“Generally, people act on emotional reasons, not intellectual reasons,” said Mitchell Kraus, a certified financial planner at Capital Intelligence Associates in Santa Monica, Calif. “So you have to get to the core emotional issues, not just give logical arguments” when facilitating wealth transfer within families.

Even the most emotionally intelligent financial planners can get in over their head when it comes to sweeping away emotion. When families and money collide, long-held grievances can make any rational discourse impossible.

“If the family has major dysfunction, bringing in another professional [like a therapist] is usually the recommended first step to get everyone to the point that they can have a polite conversation,” Kraus said.

In most cases, however, it’s not that serious. Advisers confront petty squabbles and field calls from family members with clashing interests.

Over his 29 years as an adviser, Kraus has learned to meet privately with each family member. He seeks to identify their goals and fears.

He ends these meetings by asking their permission to share what they’ve said with other family members. That way, he can host more productive gatherings when the whole family comes together to hash out solutions.

“It’s finding some common ground,” he said. “It’s crucial not only to understand what each family member is trying to accomplish but also where they are coming from. Uncovering what has happened in the past will make it much easier to create solutions moving forward.”

During these family meetings, Kraus is careful to represent everyone’s views in fair, neutral language. It’s an exercise in diplomacy.

“When individuals discuss personal wounds with me, I have to slow down and make sure I convey their feelings correctly to the family,” he said. He speaks in clear, simple sentences and avoids adopting an accusatory or judgmental tone.

Advisers tend to set ground rules when helping families work through intergenerational strife. For starters, they might urge all parties to listen for understanding, not agreement. That means paraphrasing or asking clarifying questions to confirm that they understood what they heard before they rush to make their point.

Advisers might also caution family members to temper their expectations. If someone is hellbent on getting their way at all costs, that’s a red flag.

“I tell family members that in order to optimize everyone’s goals, it will require give and take,” Kraus said.

He also likes to ask questions to uncover what motivates someone to lash out at their family. If he believes that an adult child feels unloved—or feels that his parents lavished more attention and support on a sibling—he might ask that child, “Do you think your parents did anything for you that they didn’t do for your sibling?”

“I don’t say, ‘You have Mommy or Daddy issues,’” he said. “But I can ask questions” that gently guide people to rethink their assumptions.

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