I was delighted to be interviewed for this article by Emma Jacobs in the Financial Times on 10 May 2021 (the full article is here https://www.ft.com/content/8a7fcfe3-44c4-4888-b33d-440b7e60691d (subscription required)). There is so much in this article which strikes a real chord, and mirrors the themes I so often see with families – the fears parents have, and how hard it can be to talk about wealth transition. But what happens if you don’t talk about it? And can parents and children with different values find common ground, allowing the child to ‘honour the legacy’ in a way which reflects their skills and passions? These extracts reflect the points I found most thought provoking.
When it comes to passing wealth on to children, Carl Richards, a financial planner and author of The Behavior Gap, is clear that parents should not put off the discussion: “The best time to learn to have conversations about money with your children is when they are small,” he says. “The second-best time is now. You’ve just got to have these conversations — and they will be tough.”
Stuart May, an associate director at Coutts, the private bank, says many clients tell him they worry “that if they give [their children] too much they won’t go out and work . . . the classic fear from parents is lack of motivation”.
Charlie Tee, a partner in the private client and tax team at law firm Withers, says wealthy parents worry that their children might become “feckless and easily led — [that] children can only do themselves harm with money if they have it. We have clients who worry their kids will put it up their nose or wrap an expensive car around the lamppost. They don’t want them to be a trust-fund kid. They want them to be useful and have a fulfilling job.”
Some wealthy parents have talked openly about the difficulties in passing on their wealth. Investor Warren Buffett, who has an estimated $100bn-plus fortune, has said his approach is that a “very rich person should leave his kids enough to do anything, but not enough to do nothing”. That approach inspired fellow billionaire Bill Gates, with whom Buffett co-founded The Giving Pledge — a public promise by wealthy individuals to give away the bulk of their money to charitable causes. The Microsoft co-founder and philanthropist, who announced his divorce from his wife Melinda earlier this month, says he wants his adult children “to have a sense that their own work is meaningful and important . . . We want to strike a balance so they have the freedom to do anything but not, sort of, a lot of money showered on them so that they can go out and do nothing.”
Part of being a good wealthy person is to recognise your privilege Rachel Sherman, associate professor of sociology, New School for Social Research Yet the traits that enable parents to make their fortune might not make them the best judges of how to pass it on. Tee at Withers says some wealthy people “think they will never die and also [have a] need to control everything”, with the result that they infantilise their adult children.
One of the greatest problems when it comes to transferring wealth — whether it is through inheritance, gifts or trusts — is that parents have not prepared their children. Money is taboo, particularly for those with lots of it, says Rachel Sherman, associate professor of sociology at the New School for Social Research, a private university in New York. “People don’t have the language to talk about this. It is easier to talk about sex than money. One way that wealthy parents raise their kids to be ‘normal’ [is by avoiding talking to] their kids about their wealth. [They] try to hide their wealth as they worry it is contaminating. But that’s in conflict. Part of being a good wealthy person is to recognise your privilege.”
Amy Castoro, chief executive of the Williams Group, which advises families on transferring wealth through generations, says: “Families are unwilling to have the essential conversations about wealth transition — such as expectations, roles, relationship breakdowns — because they just don’t trust themselves to have the conversations go well.” This can be complicated by financial advisers who are uncomfortable around family tensions and ill-equipped to help, says Diane Doolin, co-founder of the Institute for Preparing Heirs, which trains advisers. It is important to start conversations about money early, she says. “If [parents] don’t, there will be problems later. If the kids are not prepared, then [they] might not be good stewards of the family wealth.”
One way of bringing the conversation to life for young children, she suggests, is talking about the family tree. Another is to discuss how their parents made their money. “It can help prepare the kids by strengthening communication and financial education.”
“It doesn’t matter when the transition happens in terms of capital coming down in generations, but what is super-important is having the conversations. If you don’t talk about it, [there’s] a greater possibility of it going wrong.”
In some cases, a discussion about money might only happen after the death of a parent, which can cause problems, particularly if children are treated differently from one another in the will. There might be “an uncontrolled explosion”, says May. “It plays right back into fundamental family dynamics. In every family, there is probably one example of a child feeling more hard done by than the other.”
Skills can be taught. Children can be on the board of a business, have responsibilities, learn how to read a financial statement and set up trusts. But values have to be demonstrated. Money can shine a light on differences between generations. Trippe observes that while “parents can be immigrants to the world of wealth, their kids are natives. They have arguments because they are from two different cultures.
Arabella Murphy of Propitious, a mediator for wealthy families, agrees. Parental disapproval might just indicate they are on different wavelengths to their offspring. “The parent may not understand or approve of the child’s choices, but they haven’t necessarily gone off the rails.” Rather than shoehorn children into a life the parent wants for them, the best outcome might be to meet halfway: use the money for philanthropy or to invest in another business, says Murphy. “The child may achieve something different, in a way which makes a more lasting impact.”
There can be good grounds for managing a child’s inheritance through trusts — for example, if they are bad with money, in a difficult relationship, or have a history of addiction or ill health. However, some parents are unable to relinquish control of the money or their children, says Murphy. “Their wills often seek to reward those who comply [with their parents’ wishes] and give less — or nothing — to those who fall below their expectations. They often use trusts as a means of control, setting strict rules and standards, or disapproving of their relationships.” Advisers might not be able to change parents’ minds, she adds, but can encourage more flexibility.
If warring families end up seeking legal advice, Cove steers them towards mediation and negotiated settlements, which are more likely to restore some harmony. “Legal battles are corrosive and often very damaging to personal relationships,” she says. “Rebuilding after a full-blown court battle may be very difficult — or impossible.”