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A surprising trend has emerged when it comes to discussing inheritance. While very and ultra-high-net-worth clients often engage in these conversations, they tend to occur far less frequently with other segments. For many of these clients – those whose net worth falls in the $1 million to $5 million range or even higher – there’s a deep reluctance to discuss the transfer of wealth with their heirs.
This reluctance stems from the fear of taking away the motivation for their children to build their financial futures. Many want their children to forge paths to find their way in the world without expecting a financial safety net.
However, avoiding these conversations can have unintended consequences. It creates a vacuum where misunderstandings, confusion, and resentment can grow. This lack of communication can result in families being unprepared for the realities of wealth transfer, often leading to conflict, poor financial decisions, or the erosion of wealth meant to last for generations.
Advisors can help with the transfer of wealth
For advisors, the challenge lies in breaking through these barriers and encouraging clients to engage in meaningful, open dialogue about their plans for the future. This is a difficult task, especially when clients fear losing control or worry that their heirs aren't ready to handle substantial financial responsibility, but it is necessary.
Many of these families are first-generation wealth builders who have worked hard to achieve financial success. For them, the thought of simply passing this wealth on can seem counterproductive to the values that helped them build it in the first place.
Take, for example, a business owner who has built a successful enterprise. Picture someone who started with a single restaurant and, over the years, expanded to five. This person has worked 60 hours a week, skipped vacations, and missed their children’s ballet recitals and soccer games to build an empire.
They've survived economic downturns, weathered challenges like Covid-19, and kept their employees’ livelihoods intact. Simply handing over this hard-earned success to their children is unsettling. They might think, “No, they’re not ready for it. They haven’t made the same sacrifices I did.”
Now, imagine the next generation inheriting not just the restaurants, but also additional investments made with the guidance of an advisor. The children are no longer in the role of the wealth builder; rather, they are on track to becoming stewards of that wealth.
Their perspective shifts – they’re no longer simply inheriting a business; they’re managing an empire. And in doing so, they begin to understand the importance of planning for the future to preserve and grow that wealth. They might recognize that without careful planning, such as estate planning or insurance strategies, they could end up having to sell off a restaurant just to pay estate taxes.
This scenario highlights the psychological and emotional shift that must occur. The heirs must transition from merely receiving an inheritance to taking active steps to sustain and grow the family’s wealth.
Provide a new perspective on a complex conversation
For advisors, the opportunity lies in reframing the conversation. Instead of focusing on what the heirs will receive, start by asking clients what they want their wealth to accomplish. What legacy do they wish to leave behind? How do they hope their heirs will use their inheritance? What creative strategies can we leverage to accomplish these goals?
These discussions should not be about numbers or specific assets but about clients’ values and goals. Through this approach, clients can begin to see the importance of preparing their heirs for the financial windfall and the responsibilities of managing that wealth effectively. It becomes less about control and more about stewardship, fostering a sense of purpose and direction that aligns with their values.
Advisors can further facilitate these conversations by meeting clients where they are most comfortable. Every family is different, and so is every conversation. Some clients may be ready to dive right into a detailed discussion, while others may need to ease into it over several meetings. The important thing is to start somewhere and maintain that dialogue over time.
One of the greatest advantages for advisors who help their clients navigate these sensitive discussions is the opportunity to deepen relationships across multiple generations. Especially for those who are a part of large serial acquirers in the industry, retaining assets through multi-generational relationships is becoming crucial. Advisors who can effectively guide these conversations position themselves as trusted partners not just for today’s clients, but for their heirs as well.
In my experience, the psychological barriers to inheritance conversations are real, but they are not insurmountable. Advisors must recognize the fears and concerns their clients have and be prepared to address them with empathy and understanding. It’s about helping clients make a shift from the mindset of building wealth to one of stewardship, where the focus is on ensuring their legacy endures for generations to come.
Ultimately, these conversations are essential. They may not come naturally or easily, but they are vital for securing the future financial health and harmony of the families we serve.
Chad Druvenga is the CEO of CBS Brokerage.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
