Transition Planning: Include the Whole Family

With more than $30 trillion in assets set to change hands over the next 30 to 40 years, financial advisors and their clients are sitting on the precipice of the greatest transfer of wealth in history. At the height of the looming Great Wealth Transfer, up to 10% of the total wealth of the United States will move from one generation to the next every five years, according to a 2015 Accenture report.

Financial advisors are in a unique position to help their clients engage in meaningful conversations regarding the financial situation of aging parents and the impact that their clients wish that their wealth will have on the generation that follows. Whether your clients are the children of aging parents or the parents themselves, these conversations are as integral to preserving your clients' wealth as the financial planning that you have assisted them with.

Proactively engaging with clients regarding the transfer of wealth is key to building trust and to genuinely help families cope with this delicate and difficult issue. Here's how to start:

Key Takeaways

  • As the Baby Boomer generation enters retirement, financial advisors must begin to think about legacy and estate planning as their clients enter older age.
  • Transfers of wealth to younger generations should be addressed with an eye toward tax minimization, ensuring assets end up where intended, and that family issues are minded.
  • In addition to passing on assets, aging clients should consider long-term care insurance to help defray the costs of nursing homes and end-of-life care.

What Are the Parents' Wishes?

While every family situation is different, the first step to consider is where the parents expect their money to go. Ideally, they'll set parameters for distributions when they're gone through a will, other estate documents, and up-to-date beneficiary documents. If your clients do not have a will and other estate paperwork in place, they're not alone: a 2016 Gallup poll found that only 44% of American adults have a will.

Without paperwork in place, it's difficult for families to determine what a parent’s wishes were for their estate. While a will should be drafted by a trust and estate attorney, you should be aware of your clients' wishes and, if possible, encourage them to develop a plan for their estate that makes sense for their situation—and to keep it updated regularly, especially after significant life events. 

Ideally, a client's children and other beneficiaries should be aware of these documents and, if the client is comfortable with such a discussion, where the money will be going. Even in the presence of ironclad estate documents, nasty surprises in this area in the wake of a death can often result in damaged relationships and expensive litigation.

Consider Family Dynamics

Talking about death is never easy, though many people may prefer it to talking about their wealth. A recent Merrill Lynch/Age Wave study found that 61% of women surveyed would rather talk about their own death than their finances.

As a financial advisor, it's your responsibility to initiate the conversation. Think about your previous exchanges with the family: do they communicate openly about their wealth? If the answer is no, then one of your goals as an advisor should be to help facilitate these types of discussions in a way that is comfortable for all involved.

Are the parents closer with one child in particular, or does one child tend to take the lead? It's important for families to decide who will help the parents with financial issues as they age and what everyone's role(s) will be. Consider issues such as power of attorney or backup contact on financial decisions should the parents' be incapacitated or otherwise unable to manage their own affairs. If there is not a child or family member who is prepared to assume this role, you can help the parents find an appropriate outside professional to assist.

Similarly: how financially savvy are the parents? Elder financial abuse is rampant. While many scams are perpetrated by outsiders, abuse from family members or caregivers is also common.

Is There an Inventory of Assets?

Ideally, the parents have a handle on everything they own. Perhaps they use an online financial organizer or save statements from various investment, bank, and retirement accounts.

Your priority should be ensuring that not only the parents, but the appropriate family members are “in the loop” regarding the parents' assets, as necessary. This is especially critical if there is a possibility that the parents will lose their mental faculties in the near future. This list should include:

  • Real estate: both primary residence and any investment or recreational properties
  • Retirement accounts such as IRAs, annuities, and 401(k)s
  • Insurance policies
  • Pension benefits
  • Interest in a business
  • Social Security or Railroad retirement benefits
  • Art or collectibles
  • Checking and savings accounts
  • The location of safety deposit boxes

Can the Parents Provide for Their Own Retirement?

With a shifting landscape around pension and government benefits, many aren't even sure if they can provide for themselves in retirement. On average, adults spend $55,220 per year during their retirement, but one-third of retirement-aged Americans have less than $10,000 saved.  While some assistance programs help to close that gap, many children are forced to step in and provide financial assistance for their parents as they age. It's important for children and parents to design a financial plan that accommodates each others' expectations.

Long-Term and End-of-Life Care

While Medicare can assist with many health expenses, retirees have to cover about 35% of their medical expenses on average. That amounts to more than $18,000 per year, including end-of-life care, according to the National Bureau of Economic Research.

Do the parents have long-term care insurance? If they do not, is it reasonable for them to purchase it in terms of their age, health, and the cost? Otherwise, are they in a position to self-insure? While planning for retirement expenses can be a daunting experience, it's important to have a discussion around medical costs long before the need is forced upon a family.

Your Role

While some of the above might seem outside of a financial advisor's typical role, it is crucial for you to help your clients' families consider what the future may hold. As an impartial third party and financial expert, you offer an invaluable perspective and can help your clients understand how other families have handled these issues.

According to PwC, more than half of a client's assets are usually lost when they are transferred from one generation to the next, frequently because the heirs do not have a strong relationship with their parents' advisors. From a business perspective, especially if the parents are your clients, proactive planning with multiple stakeholders may also be the key to a longer, intergenerational relationship.

Assisting families with the transition of wealth and related financial issues is a great service to offer to your clients. Your knowledge and perspective can make you an excellent facilitator of these often-difficult family discussions and can help you cultivate relationships with the next generation of the family.

Article Sources

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  2. Gallup. "Majority in U.S. Do Not Have a Will." Accessed Feb. 27, 2021.

  3. AgeWave. "Women and Financial Wellness: Beyond the Bottom Line." Accessed Feb. 27, 2021.

  4. GOBankingRates. "64% of Americans Aren’t Prepared For Retirement — and 48% Don’t Care." Accessed Feb. 27, 2021.

  5. U.S. Bureau of Labor Statistics. "Table 1300. Age of reference person: Annual expenditure means, shares, standard errors, and coefficients of variation, Consumer Expenditure Survey, 2019." Accessed Feb. 27, 2021.

  6. National Bureau of Economic Research. "Medical Spending of the U.S. Elderly," Pages 24 and 27. Accessed Feb. 27, 2021.

  7. PwC. "Global Private Banking and Wealth Management Survey 2013," Page 19. Accessed Feb. 27, 2021.