What is Intergenerational Planning?

You may have heard financial professionals talking about “Intergenerational Planning”

And just what is “ Intergenerational Planning”? It has nothing to do with Startrek, that’s “Intergalactic Planning” Intergenerational Planning is planning between children and their parents regarding the transfer of assets from one generation to the next. But I don’t mean just the transfer of tangible assets such as cash, stock and real estate but the transfer of intangible assets as well, such as their values and beliefs. I will talk more about that later.

Recent studies have concluded that in the next several years, the Greatest Generation( those who were adults during WWII ) will transfer more than $25 Trillion dollars to their Baby Boomer children. This is more wealth than has ever passed from one generation to the next in the history of the world. But how many families have actually discussed this important financial event in a logical, organized fashion.

One of my clients was a retired orthopedic surgeon. About 15 years ago his mother died and willed her shoreline property to him. At the same time she gave her other son what she considered an equal amount of investments and cash. She never talked to either son about her plans. Over the years the shoreline property has appreciated dramatically to a value over a million dollars. And because of the difficulties in the stock market and the recently low returns on savings the second son’s inheritance is worth significantly less. As a result neither brother has talked to each other in several years. Now they only communicate through their lawyers.

These situations happen all the time because there are two major gaps that seem to get in the way between parents and their children. These two gaps are the Generation Gap and the Communication Gap. The Generation Gap shows up very often when baby boomers try to open a conversation about money with their parents. The parents often consider talking about money and assets with their children a totally taboo topic. They never talked to their own parents about money and they don’t intend for their children to be prying into their financial affairs.

But Intergenerational Planning is not just about planning for cash, investments and real estate. There are other areas to discuss that are equally important to the parents if not more important.

The transfer of values and life lessons need to be considered. What values do parents want their children, grandchildren and great grandchildren to carry on? And what life lessons have they learned that their children can learn from?

Another area to discuss are any individual instructions and wishes that the parents want carried out. Certainly a living will and health care proxy must be discussed. Which child do they want to make health care decisions for them if they can’t make them themselves. Under what conditions do they want to be kept alive and for how long.

And it is a big mistake to force children to come to a consensus regarding health care matters. That can cause irreparable damage between them. One child, who I will call the Alpha child, should be given that task. I’ll discuss the Alpha child later.

But in addition to these health care issues there are other wishes that parents may want to be communicated. Are their certain charities that they want to favor? Do they want to be remembered in a certain way at their church or Synagogue?

In addition parents must communicate their wishes regarding personal possessions of emotional value to their children. This can often be done through a codicil or letter attached to the will. Is there a certain granddaughter that has always admired a certain piece of jewelry. Or does one son have a particular interest in a well preserved antique car?

Most baby boomers and their parents are not having in-depth conversations about any of these issues.

And why don’t these conversations occur? Well first of all we are not comfortable at all in discussing death and inheritance, especially with our parents. A boomer child who brings up the subject may be viewed as a golddigger by their parents. Why are they bringing that up? Are they trying to get an advantage over their brothers and sisters?

And when parents bring it up the possibility of their death, their children often say “ Oh mom, Dad you are going to live a long time. We don’t need to talk about that now.”

There is also often a fear of conflict. Parents and their children are reluctant to bring up sensitive issues because they fear it may create conflict in the family.

For example one of my retired clients approached me at an annual investment review and said, “ Bob’ we’d like to change our estate plan but we are reluctant to bring up the subject with our son. He is the trustee of our trusts for himself and his brother and sister. But we are concerned about his wife’s influence on him. We don’t really get along with her very well and she’s not even talking to our daughter. How do we make changes and not hurt his feelings?

In addition to concerns about hurting their childrens’ feelings parents are often very concerned about treating each of their children fairly. Is it really fair to give each of your children the same amount? Especially if one of them has a significantly great need for financial help or has been very helpful to you as you got older.

One of my elderly clients recently passed away. When we talked about her assets in meetings over the years she constantly reminded me that she was very concerned about treating each of her children fairly. So she left her assets to each of them equally.

Two of her children lived out of state and were both in good shape financially. A third child, her only daughter, lived near by and had spent several years taking care of her mother when her health started to fail. But her mother had not favored her in any way. The family had never had any conversation regarding splitting of thr assets. And as a result the daughter has become very resentful towards her two brothers.

What those families have found that are willing to open the lines of communication between parents and children are the following:

  1. Postponing uncomfortable discussions does not eliminate the need to deal with issues sooner or later.
  2. Fears and concerns may prove to be exaggerated or unfounded.
  3. Family members in conflict may welcome the opportunity for discussion or resolution.
  4. Avoiding the potential for conflict now may result in greater conflict later.

There are specific steps that I suggest you take to ensure that your intergenerational planning goes smoothly

  1. Enlist the help of your Alpha child. Who is the Alpha child? That is the child that you can comfortably talk to about all the issues related to your plans. It is the child who seems to have the most common sense and is respected by his/her siblings. It is the child who feels that it is their responsibility to start the conversation amongst the family.
  2. Seek out help from one of your trusted advisors. What advisor can you talk most comfortably with? What advisor is sensitive enough to talk with you and you children about sensitive issues. Is it your investment advisor, your lawyer, your CPA?
  3. Ask you trusted advisor and your alpha child to schedule a family meeting. I suggest that spouses and grandchildren not be invited. This not a social affair.
  4. Gather together all the important information about you and your spouse and put it in a notebook. Or consider one of the published guides to personal organization ((hold one up)
  5. Make sure you review this notebook with your spouse. Include information about any accounts you have online (with passwords). Make sure both of you know what is in safe deposit boxes and what is hidden around the house.

A few years ago I was on the phone with a client whose mother had passed . He was cleaning up her house to prepare it for sale. In the process of going through the house he found over $30,000 in cash hidden in closets, cabinets and various locations around the house. His mother had never told him that this cash was there and he could have easily overlooked it if he hadn’t been careful. The new owner would have been pleasantly surprised when he found all the cash in the ho

  1. Select executors and trustees carefully. Don’t just pick a child because you think your child should do the job. Make sure they understand what the executor’s role is before they take it on.

And don’t name all your children as trustees. Select the Alpha child and consider a trust company or financial institution as a successor trustee or administrator of the trust. Keeping track of trust assets can be labor intensive and time consuming and your children may need help. Again make sure they understand what the trustee’s responsibility is.

  1. Be especially careful in planning regarding your real estate and other valuable illiquid assets. Many families break up around the decision to keep the families beach front property in Rhode island or to sell it.

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