Financial conversations to have with your family

Conversations about money do not usually come easily. There is often squeamishness about discussing wealth, and undoubtedly money can sometimes warp personal relations. However, there are also dangers in ignoring key issues relating to money, from fractured relationships to the risk of wealth ending up in the wrong hands. Many areas of discussion concerning money are not just worthwhile having with your family, but absolutely vital.

Failure to talk about money can be perilous. Money can divide families for generations – particularly where there is a lot of it. From the feuding Gettys to J. Howard Marshall II, whose marriage at 89 to Playmate of the Year Anna Nicole Smith precipitated more than two decades of litigation involving his sons, rows over inheritance have led to bitter disputes and personal misery. Hyatt heiress Liesel Pritzker filed a $6bn lawsuit against her father when she was only 18, claiming that her trust fund had been looted.

Disputes like these are invariably divisive and almost always extremely expensive for all parties. If you have worked hard to build up family wealth, you would probably prefer not to see it haemorrhaging in lawyers’ fees or your closest relatives locked in bitter squabbles over the division of your assets. And if you are not clear about your intentions upfront and disputes erupt, there is a risk that the goals you have for your money may be thwarted.

A stage for long-held grudges

Money is frequently the stage on which many varieties of long-held family grudge are played out, from warring siblings to venal step-families. In many cases disputes occur because the tension existed anyway. However, there are certain pinch points that makes conflict more likely: economic disparity between beneficiaries, malign external influences, the uneven distribution of an estate, and poor sharing of information.

Talking about money is not just a way to avoid unpleasantness. These conversations can also be an opportunity to pass on wisdom.

However, talking about money is not just a way to avoid unpleasantness. These conversations can also be an opportunity to pass on wisdom. Talking about money can help future generations avoid financial pitfalls. It may help family members to know how you accumulated your wealth and the sacrifices it took. You can underline the point that wealth entails responsibility.

Having conversations about money gives you a chance to explain the reasoning behind your decision-making. Regarding the distribution of wealth, it enables you to defend yourself while you’re still around to offer your viewpoint. Such conversations may not be easy, but they can save a great deal of long-term heartache.

Openness and explanation

While there may be a seductive pleasure in imagining the face of a disliked relative discovering at a will reading that they have been disinherited, it is usually best for your family to know who will inherit what ahead of time, to enable any disputes to be addressed and facilitate planning. This is particularly important if your intended legacies differ between siblings, if you have a complex family structure, or if there have been payments made during your lifetime for which adjustment needs to be made.

It is better to take on the challenge rather than leave your family to decipher your intentions when you are no longer there to explain them.

It is normal to have reservations about being so open. Will close family members treat you differently, knowing they stand to benefit from your death? Will you have to field a lot of uncomfortable questions? Either way, it is better to take on the challenge rather than leave your family to decipher your intentions when you are no longer there to explain them. Even if it’s uncomfortable, you can answer any questions and set out the reasoning behind your decision-making.

Your family should know who will be asked to act as trustees or executors, or who will be named as having power of attorney. Often wealthy families operate with a loose collective of advisers that can be difficult to untangle; others have formal family offices. Knowing whom they should turn to can save your loved ones a great deal of anxiety and enable them to become comfortable with your choices. Naming these people ahead of time can also ensure that everyone knows who will be making decisions if you become incapacitated and unable to administer your own financial and personal affairs.

Plans for later life, and end of life

It is worth letting your family know the basics of your plans for later life – for example, if you plan to sell the family home and use the money to travel the world. If relatives know they should not expect a significant inheritance, they may give greater priority to retirement planning or paying down debt. This also applies if you plan to distribute some of your wealth during your lifetime – it is a kindness to let your family know what they can expect so their own financial planning can be adapted.

As part of this, you need to be clear about your end-of-life wishes. There is a natural reluctance to plan for your death, or disabling health conditions. Who wants to contemplate what would happen if they were incapacitated by Alzheimer’s disease, or left paralysed by a stroke?

However, it is worth exploring end-of-life care issues with your family. What care do you want and how will it be funded? Do you want medical treatment if you are suffering from terminal illness? Taking these decisions away from your loved ones and ensuring that they understand your wishes is vital in ensuring you receive the care and treatment you desire.

Dealing with personal possessions

The distribution of personal possessions can also be a flashpoint. Often it is not cash settlements that are most disputed, but the distribution of objects with sentimental value to family members. It is tempting to see paintings, furniture or jewellery in terms of monetary value alone, but they may mean more than that to some relatives.

In Luxembourg, the law dictates that there are compulsory heirs, i.e. persons who are legally entitled to part of the estate.

Again, it is usually beneficial to sort out these issues ahead of time, perhaps by asking  family members to choose particular items they would like. In addition, if you are giving a sizeable share of your wealth to a charitable cause, your family should know about this, and why it is important to you. Remember that, in Luxembourg and neighbouring countries including Belgium, France and Germany, the testator is not free simply do as they please. The law dictates that there are compulsory heirs – persons who are legally entitled to part of the estate, although the specific rules vary from country to country.

It is vitally important to keep the conversation open, to let your heirs know that they can talk to you at any point if they have questions or if disputes arise. It undoubtedly requires moral courage, and in some cases may involve airing some uncomfortable truths. However, if you have worked hard to build up substantial wealth, you don’t want it to become the spark for a drawn-out family feud. Talking about money is the best way to ensure it brings your family together rather than tearing it apart.