By Suzanne Woolley – Feb 17, 2021
(Bloomberg) — You don’t have to be as rich as Brooke Astor for money to cause problems in the family.
Whether it’s fights over inheritance or simply disagreements over how money has been invested, the pain and anger tends to be magnified when relatives are involved. Disputes over financial issues can cause untold problems across all social spheres — even in families that don’t think of themselves as wildly dysfunctional. About 15% of siblings say they’ve had conflicts over issues such as inheritance and fairness, a 2017 survey by Ameriprise Financial found. In Astor’s case, her only son was convicted of siphoning millions from her estate while she suffered from Alzheimer’s — in particular, for giving himself a $1 million raise for managing her money. And then there was the teenage Pritzker heiress who sued her father and extended family, accusing them of looting her trust funds.
Just this month, arbitrators ruled that two JPMorgan Chase & Co. financial advisers misstepped while managing more than $80 million for their own grandmother, Beverley Schottenstein. One relative described the problems in the family as stemming from the “toxicity of inherited wealth.”
It doesn’t have to be this way. There are some clear pitfalls to avoid when mixing money and family. Communication is particularly important now during the pandemic, with so many seniors isolated at home and more vulnerable to financial exploitation. It can be awkward for parents and adult children to talk about estate planning, but it’s better to deal with tensions before they drive a family apart.
It’s not easy raising the topic of estate planning with a loved one, but trying to be proactive about planning is a way to reduce anxiety before entering a high-stress situation, such as a parent in a coma, getting diagnosed with illness or falling victim to an accident. Here are some approaches to try.Millennials, It’s Time to Talk Estate Planning With Your Parents
Those conversations will help set expectations and avoid unwelcome surprises later. More than half of people surveyed in 2018 by Charles Schwab Corp. said they thought their parents would leave them an inheritance, but data from 1989 to 2007 showed that, on average, just 21% of people actually received an inheritance of any kind.
Here are a few ways families can become divided when money is an issue, and ways to protect against that happening. My cousin, my money manager.
It’s natural to want to give a son, niece or grandchild a leg up when they’re starting out in business. But if the business is in financial services, it can be a disaster to become a client, said financial planner Timothy Sobolewski, president of the Financial Planning Center in Amherst, N.Y. “Many times a young person will take a job in the life insurance industry, for example, where there is very high turnover and little investment training,” he said. “They often are inclined to use proprietary products, because that’s what they’ve been taught, and they may need to hit certain sales quotas to keep their benefits, or even their jobs.”
It’s not any better in the brokerage world, Sobolewski said. While having an experienced and trusted relative as your financial adviser can be a huge boon, finding a neutral party to manage family money avoids conflicts. Either way, choose an adviser who is a fiduciary, so must put a client’s interests ahead of their own when giving investment advice or managing portfolios.
If you do hire a relative to manage your money, stick to this rule of thumb: Don’t take on anyone you’d feel uncomfortable firing, said David Foster, a financial adviser and founder of Gateway Wealth Management in St. Louis. Or think about arranging a single consultation. “That way, there are no hurt feelings (or hurting portfolios) if you decide not to work together on an ongoing basis,” Foster said.A family takeover.
Astor’s son was accused of isolating his mother from friends and other family, and fired long-time staff. One of the best ways to try and guard against possible financial exploitation of a vulnerable senior is to make sure they have a trusted team of family and advisers who serve as a system of checks and balances, said Elizabeth Loewy, who was the prosecutor on the Astor case as chief of the elder abuse unit at the Manhattan District Attorney’s office.
“Most of the cases that were referred to my unit, if they didn’t come from police officers, were from family members, or the family CPA, or a civil attorney, and not a bank,” said Loewy, who co-founded account monitoring service EverSafe. “The more people you can have involved in keeping an eye on things, the better.” Be aware of where a parent has their financial accounts. Ask to be added as a trusted contact that a bank can contact, without breaking any privacy laws, if they suspect fraud in a parent’s account or are concerned about possible cognitive impairment.Wayward spending.
Financial decision-making suffers as we get older, even if it’s not apparent. It might show up as an elderly parent writing multiple checks out to the same charities or repeatedly buying copious mail-order supplements. You might feel the need to help manage a parent’s accounts to stop them from being drained. Geoffrey Kunkler, a partner at Columbus, Ohio-based Carlile Patchen & Murphy, has a client whose mother had predators taking advantage of her: She was writing checks in the tens of thousands of dollars to organizations that sounded like charities, but weren’t, he said. To protect her mother from the scammers, the daughter, who had financial power of attorney, had some of the mother’s funds transferred into a trust, of which the mother is the beneficiary. The money is used for the mother’s health-care costs, but she can’t write checks on the account.
Financial advisers also recommend getting what’s called a durable power of attorney. A regular power of attorney without that designation expires when someone becomes mentally incompetent; with a durable power of attorney, there’s no expiration when that happens.Sibling resentment. In some families, one sibling gets more ongoing support from parents before their death, and others may not feel he or she should get an equal share of the estate. Another sibling may do the lion’s share of taking care of elderly parents, while others do little. And while one sibling may be fine with serving as executor, another co-executor may really not want to be involved or not suited to the task.
To avoid resentment, parents could work with an attorney on estate equalization to even things out — or explain to children their reasons why things aren’t even. And while families often name siblings as co-executors to avoid playing favorites, or just name the eldest the executor, one sibling may not have the skills or temperament for the job.
Pick the child whose skills are best suited to the task, and explain to the kids why you are doing that. “Being an executor can be a big lift, so if one person isn’t going to carry their weight, you may think you’re doing a favor by making them an executor but it could just cause more trouble in the end,” said Melissa Weisz, a wealth adviser in RegentAtlantic’s Morristown, N.J., office.
Families should try to agree on a division of labor — emotional, physical, mental and financial. Maybe one sibling deals with health care issues, while another deals with the finances, and another can devote love and time to a parent, or provide other kinds of support.The power of power of attorney. A relative who is financially dependent on you could have a conflict of interest if they are given financial power of attorney and can act as your legal representative. Expensive care for you may mean less for them when you die. That means you may want to pick someone financially independent of you, recommends Weisz. “You’ll get more objective advice, and that person isn’t banking on the inheritance to fund their retirement, so if you need high-quality care they’re going to pay for that,” she said.
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