Whose Money Is It Anyway? Part II

What makes it so difficult to talk about money with family?

Posted Mar 28, 2016

Gerard Van der Leun/Flickr
Source: Gerard Van der Leun/Flickr

After the publication of my first blog about older adults and their middle aged children talking about finances, I received a large number of responses from colleagues, family, friends, and some who work in the financial sector. Many of the responses were similar: “What makes it so hard?” and “How do we do it?” This post will highlight the elements that make these conversations difficult, followed by another blog that provides guidelines for having the talk. Note that while many of my examples refer to a couple, these things also hold true for single older adults.

If you are an older adult worried about having to talk to your middle-aged children regarding what they may or may not be receiving when you pass—or what they may or may not be asked to do in case you become physically or cognitively disabled—you're not alone. This is one of the most difficult conversations to have.

You may be familiar with the high profile inheritance disputes and disappointments that have plagued the extraordinarily wealthy, such as Brooke Astor, Michael Jackson, James Brown, and Anna Nicole Smith—not to mention Leona Helmsley, who famously left her entire estate to her dog, Trouble, in 2007.

Middle-aged children of less affluent families are even more vulnerable to being disappointed. Fortunately, this is not a very common problem. Whether your family is affluent or lives modestly, though, the question of posthumous financial plans can be a tender topic to broach.

Below are some variables that are likely to lead to more difficult and perhaps contentious conversations.

Philanthropy

The first variable has to do with the older parents’ commitment to philanthropy. If and when middle-aged children are told that Mom and Dad are going to be leaving a significant proportion of their net worth to a church, synagogue, mosque, cause, educational institution—or a combination of the above—how do you think they might respond?

  • If it's a surprise, not very well.
  • If the middle-aged children are not financially solvent, not very well.
  • If the middle-aged children do not share the parents’ values, not very well.
  • If the middle-aged children have friends or acquaintances whose lives have been made better by a significant inheritance, not very well.

One might assume that if none of the above were in play, then they would certainly respect the wishes of their parents to dispose of whatever they have managed to accumulate in whatever way they desire. Perhaps, but perhaps not. The older the parent and the younger the children, the more likely there are to be differences in values and the willingness to commit to relatively higher levels of giving.

Equality versus Need

The second variable that may affect the emotional complexity of these conversations is the older adults’ commitment to the concept of equality as opposed to need. 

For example, suppose there are two children, both in their 50s. Larry, a successful small business owner whose income allows him to take international vacations a few times a year, is neither married nor in a committed relationship. Sarah, a teacher, is married with four children. In the equality model, both Larry and Sarah will inherit the same amount. In the need model, Sarah’s share will be larger, since she and her husband are struggling and everybody wants the four grandkids to go to college. So the need model is better, right? 

Has anybody asked Larry?

Steven Depolo/Flickr
Source: Steven Depolo/Flickr

Here are some other scenarios that challenge the equality model:

  • A middle-aged child’s lack of money management skills.
  • A middle-aged child’s previous history of having borrowed a large amount of money from Mom and Dad without repayment.
  • One child suffering from a chronic illness that limits their ability to be financially self-sufficient.
  • A permanently disabled child.

For all of the above there are solutions, such as special needs and special situations trusts.

Nice versus Not Nice

Now let’s consider a slightly different scenario, where there are three children and one of them has been particularly alienating. I'm talking about non-communicative, borderline verbally abusive at the few family events that he/she attends, or openly disdainful toward Mom and Dad. The two other children have been great kids. They call a few times a week, send pictures of the grandchildren, presents for birthdays and holidays, show up for celebrations whenever they can, and go out of their way to make their parents feel loved, wanted, and needed.

Let us add another dimension to the story. Relatively speaking, all three of the children have done equally well financially and have similar family circumstances. That is, there is no difference in need, but only in the quality of the relationship. How do parents factor in the differences in relationships that they have with their children in how they write their wills—or do they?  If they treat everyone alike, do the loving children have a right to feel that their inconsiderate sibling is being given much more than they deserve? If, on the other hand, Mom and Dad choose to make major distinctions between their “good” kids and their “bad” kid, are they punishing from the grave? And no matter what the parents are planning to do, how do you have that conversation?

Blended Families

Another complicating factor involves blended families. Consider the following scenario, which is not unusual: Bob and Carol are both in their mid-60s and have been married for 30 years. Each were married previously and have children from their first marriages—two for him and three for her. In addition, with the help of in vitro fertilization, Carol and Bob have two biological children of their own. All of their children are married and have their own children, which means that their combined family consists of seven children and eighteen grandchildren.

Kitty DuKane/Flickr
Source: Kitty DuKane/Flickr

Let me add a bit more intrigue to the scenario. Carol received a piece of property as part of her divorce settlement which has increased in value and is held in a trust as her separate property. In addition, Bob received a modest inheritance from his parents, who stated explicitly that they wanted to have the funds go only to Bob’s and Bob and Carol's children. Understand that Bob's parents were not displeased with Bob's decision to marry Carol, but did have feelings about how they wanted the monies that they had worked so hard for distributed. 

If one or more of the issues I raise in this blog are present, it’s more of a problem.

So here are a few things for older adults to consider before plunging into this financial abyss with their middle aged children.

  • As relationships become more complex, so do inheritance issues. Not only is there more uncertainty about the legal, financial, and tax consequences of what and how decisions are made, but there is also more uncertainty about how to communicate these decisions to one's children.
  • As the size of one's estate increases, so do the consequences of what gets left to whom. If Mom and Dad live in a modest apartment, depend on Social Security and an outside monthly retirement income of a few hundred dollars a month, have a total net worth of $25,000, and two middle-aged children, each married and with a couple of kids, then it’s less of an issue. If, however, the actual monies involved are significantly greater, then there is more concern.
  • Financial planning is going to take more time than you think. First, if you have a spouse or legal partner, the two of you need to be sure that you are in agreement.  Even if you don't have a spouse or partner, if you were previously married, you may have extended family to take into consideration.
  • You're probably going to need some type of professional help. That may start with someone in the financial world—your accountant, the person who you rely upon to help you make investment decisions, or a banker. You're also likely to need an attorney (preferably an elder care or estate attorney) who will know about things like trusts, trustees, health directives, and all the rest.

Assuming that all of the above have been addressed, how do you get the conversation going? How much is disclosed? How much is not? Are there any tips that can make these very difficult conversations easier?

My next blog will address these questions.