Mixing Business with ‘Family Stuff’

Nobody enjoys a family feud over money. Nobody wins. This is especially true for feuds concerning the inheritance of assets from loved ones. Over the next few decades, trillions of dollars are expected to pass from one generation to another. Unfortunately, the traditional approach to estate planning does not assist with the successful transition of assets and keep the family together. Many wealthy families are taking a new approach to avoid future generational fights over money.

Poor succession and estate plans usually stem from emotional issues. Consequently, there is a strong business case for addressing emotional and psychological issues in estate planning. Most people respond in one of two ways when they hear this: Either they get it immediately or they say something like, “Why go dragging family stuff into a legal situation?” Those who get it immediately realize that estate planning is a legal situation bound up with “family stuff.”

For example, most of us know that psychological agendas and strong emotions, working behind the scenes or out in the open tend to undermine a process. The same holds true for undermining the estate planning process. Hidden agendas and emotions can drive people toward behaviors that stop the process and shut down communications. Other behaviors are more overt, such as purposefully missing meetings, or failing to provide information, or refusing to sign documents. All of these things prevent timely, satisfactory completion of the plan. Strong emotions also drive people to create wills that immortalize resentments, power imbalances or poor relationships in the family. When they do, they jeopardize the implementation of the plan, not to mention family harmony, down the road.

Most of us have, at one time or another, probably also heard warring survivors say their fights are not about money – and they are right. The fights are about anger, envy, fear, pride, jealousy, resentment, power, love, hate and regret. In my experience and in researching hundreds of litigated estate plans, I’ve found that strong emotions, rather than legal flaws in the documents, drive people to contest wills and trusts. Family fights over estates, even locally, have virtually eaten up and destroyed the assets that were left behind by the parents, and most importantly, destroyed the family structure. As in divorce, a death in a family often makes money a medium for addressing emotional matters – matters that in the past were not properly addressed in the estate planning process.

As recently reported in the Wall Street Journal, some advisers, including my own firm in the past, have used short psychological tests like the Myers Briggs Type Indicator to profile family members’ communication and decision-making styles. Many of us have also tried exercises like “role plays,” where family members reverse roles to help inspire conversation. Only in recent years, though, have I found a truly effective approach to helping families and advisors deal with the upsetting emotions and family dynamics that arise around succession and estate planning.

It is a strategy that moves family members and other stakeholders from decisions and behavior based purely on family roles to decisions and behavior based more on what we call “business rules,” successfully blending the estate planning legal process with the family’s dynamics. Boston psychiatrist Dr. Richard Goldwater has developed a trademarked model that addresses this approach. It’s called “Roles and Rules.” Applying human psychology to succession and estate planning to create a context for creating a sound estate plan works more often and with better results than any other approach to succession and estate planning my associates and I have ever tried.

Studies show that only 34% of family wealth makes it past the second generation and only 14% of family wealth makes it past the third generation. Many think that’s due to irresponsibility on the part of the heirs, but very often that is not the culprit. The reduction of family wealth is more frequently related to a family or its advisors ignoring psychological issues in the planning process that legal and financial tools alone cannot adequately address.

Sadly, some families, attorneys and estate planners see this sort of work as “touchy-feely,” and thus unnecessary. However, the research and experience in the field clearly reveals that when the will takes effect, death and grief often release pent-up emotions that often overrule otherwise rational and economic decision-making and fuel legal actions by survivors. When the parents were alive, their role as parent worked as the structure to keep the family and the planning in check; however, upon their death and the shift to the next generation there tends to be a Rules Crisis. The children have no structure, no rules in place to help make the transition smooth, because the parents, in their planning, failed to anticipate that the children might grasp at straws, once they were gone, to make up emotionally for something that was missing when they were alive. Thus, resulting legal actions begin to erode the value of the family business or the estate more quickly and surely than any tax code or competitor ever could.

The most important step or decision, when creating or revising an estate plan, should be to find advisors who understand that family dynamics can destroy a family; and who are equipped to bring in the right people to help the parents put in place a reliable legal document that addresses the family dynamics as part of the estate planning process. From the research, these factors go a long way toward developing an estate plan that will hold up long after you’re gone.