10 • December 2014 • Business
www.PineappleNewspaper.com
The Pineapple Newspaper
Why and how to talk about inheritance with your family
The Times They Are a-Changin’ By Jeremy Office Special to The Pineapple
T
he psychology of investors and the behavioral aspects of investing have always intrigued me. As a financial advisor I interact with an eclectic group of people across the various generations. Typically, advisors focus on older generations, understandably because that is where the highest concentration of wealth is. But as demographics shift and older generations such as baby boomers begin to retire, we can really begin to see the generational differences in the way wealth is perceived. In the initial consultation process the first step is getting to know your client and understanding what makes them tick. One aspect we need to understand is what might have influenced their perception of money and investing. Therefore, I thought it would be interesting to see what some characteristics of generations are and how this can affect their views on wealth management. First, let’s focus on Baby Boomers since they are the generation that is looking at retirement today. The Baby Boomers are born from 1946 to 1965. The post-war generation witnessed and participated in some of the greatest social changes in the country’s history during the 1960s and 1970s. By the early 80s the economy had rebounded and the United States entered into one of the longest periods of sustained economic growth since World War II. During these times consumerism and materialistic greed left this generation ill prepared for retirement as spending exceeded saving during these peak earning years. As Baby Boomers began to reach retirement age, fast forward to 2008 when we experienced the largest recession since the Great Depression and you can understand their concerns about financial security in retirement. The following generation is referred to as Generation X. This includes people born from 1965 to 1976. This generation is characterized by growing up during corporate downsizing, massive layoffs, governmental scandal, and come from dual income and/or divorced families. This led to a self-reliant and independent way of thinking. As the first generation to grow up with computers and remote controls, they are more comfortable with technology than previous generations. From the perception of investing and wealth, Generation X has faced stagnant wage growth and higher levels of debt than previous generations. As far as planning for retirement, they are more prepared by having taken advantage of company 401(k) accounts and began to save at an earlier age. Some current concerns for Generation X are college savings plans for their children and cash management. Lastly, the generation born between 1977 and 1998 are known as Generation Y or “Millennials.” They are the biggest demographic
the U.S has ever seen. Millennials are products of a globalized world that is more connected than ever. As early adopters of social media and growing up immersed in technology and connectivity they value relationships and the ability to have instant gratification. They also happen to be the most educated generation entering the workforce. With that education also comes the highest level of student debt of any other previous generation. Facing few job prospects, towering student loans, and an uncertain future entering the workforce during the recession, they are more hesitant to stay in one place. They are mobile and rent rather than buy. Climbing the corporate ladder isn’t something they place emphasis on. In a generation where Mark Zuckerberg dropped out of college to start Facebook and turn it into a multibillion dollar company and the rise of app development making people rich in a fraction of the time, they have embraced entrepreneurialism and look to make an impact in the world. After seeing their parents have to delay retirement and scale back their spending because of the 2008 recession you can understand that they would be more hesitant to invest in traditional financial markets (i.e. stocks and bonds). They are more conservative, less trusting, and rely more on digital tools including social media to solve financial problems. As the benefactors of inheriting an estimated $15 trillion of baby boomer wealth, they need to be advised on how to handle and deal with such transfers. As I have only scratched the surface on generational differences, I think it is important to be cognizant of the different generations. Being able to understand our members not only builds a stronger relationship, but also provides us with the insight needed to better service them and add value. As with any business, you need to adapt to the times and environment and know your customer. As wealth is transferred from one generation to another, knowing the mindset of different generations can be what sets us apart and keeps us from making the same mistakes and assumptions. Sometimes we should learn from the past to prepare for the future. Jeremy Office, Ph.D, CFP, CIMA, MBA is Principal at Maclendon Wealth Management in Delray Beach and specializes in portfolio construction, strategic asset and liability management, and long term planning relating to financial matters as well as real estate, income tax, insurance and estate planning. He is also Managing Partner of SJO Worldwide a venture capital company. www.maclendon.com 855.MAC.WEALTH
By Colleen Hasey Schuhmann, CRPC Special to The Pineapple
families who discuss this early, are happier than those who don’t.
One of the insights we gained from a compelling UBS Investor Watch report on the subject was that, changing the way families view inheritance can have a significant and positive impact both on benefactors like you and on your heirs. When parents include their children in their inheritance plans, families are much happier with the outcomes. And nine out of ten heirs report being highly satisfied when they know the details ahead of time.
When was the last time you reviewed your will or estate plan? It’s important that you keep your will current to reflect any changes that have taken place in recent years.
A tough conversation to have Despite these facts, neither benefactors nor heirs feel comfortable having this difficult conversation. You may be familiar with the emotional barriers on both sides. Benefactors, who may be living active, comfortable lives, often feel inheritance is not a pressing issue. They may also not want their heirs to count on an inheritance. Heirs, on the other hand, may feel that it’s inappropriate to discuss their parents’ money and don’t want to appear greedy. But both parties agree on one thing: It’s the benefactor’s responsibility to start the conversation. Planning can make the difference We believe that the desire on all sides to have a more open dialogue about inheritance can be fulfilled by discussing the subject within the broader context of financial planning— especially longevity planning. People are living longer and living in better health. They now recognize the need to plan for the years ahead, including healthcare, long-term care and how they will pass on their wealth. When considered as part of financial planning and overall wealth transfer, the subject of inheritance can take its place alongside other types of decisions that families make together, with everyone’s wishes and needs addressed. The conclusion we draw from the research is clear: Your loved ones want you to start inheritance planning early and include them in the conversation. We can be a valuable neutral party to help you and your family open the lines of communication. We can work with you on the advanced planning that can help ensure a smooth transfer of wealth and avoid future conflict among your heirs. How we can help There is no “typical” way to have a family conversation about inheritance. But you should be prepared to discuss specific subjects and review specific financial information. We can guide you in this and help structure and even lead a family meeting to address these issues in terms of your unique family situation. Here are some of the issues you may consider: Emotional factors. Families don’t always like to talk about money. Some benefactors feel that letting their children know about the wealth they’ll receive one day may dampen their initiative or give them a sense of entitlement. Other benefactors want to enjoy their money, without feeling judged about how they spend it. And, children often find it awkward to discuss their parents’ wealth. But
Does your spouse understand your estate plan? We’ve found that typically only one spouse handles the planning. But it’s important that you both know the overall plan and objectives, before you start talking to your children. Have you discussed your plans with your children? Knowing what to expect ahead of time can prevent hard feelings during a difficult time. Our research reveals that when families have knowledge about the estate plan up front, there’s a 50% drop in disagreements when a loved one passes. Is there anything you want to do today to help your heirs? You may want to help a child purchase a home, or you could set up 529 college savings plans for your grandchildren. We call that “giving while living.” We can also discuss how to balance this desire with the need to retain enough resources to maintain your lifestyle given today’s longer average lifespans. It’s all part of a comprehensive wealth management plan. If you’re worried that your children are inexperienced and naïve about money and investing, we can also spend some time educating them about financial matters and how to be responsible with wealth. We can have an initial family conversation without talking about specific amounts. We’ll focus on helping your family understand your wishes and how you have structured your estate plan to support those wishes. Keep the conversation going Our experience—and that of clients like you—shows that it’s important to start the inheritance conversation now, and keep it going on a regular basis. We can play an important role—planning, leading and taking part in your family meeting on this topic. At the same time, we’ll be working with you to understand the issues you face, and providing insights and guidance to help you achieve your financial goals, throughout your lifetime and beyond. To read the latest Investor Watch, go to ubs.com/investorwatch.
Colleen Hasey Schuhmann, CRPC, is Vice President – Wealth Management at UBS Financial Services in Boca Raton. Colleen also serves on the Board of the Delray Beach Library. She specializes in all facets of your financial life, including retirement planning, portfolio management, life insurance and long term care planning, and estate planning strategies. For more information, please contact Colleen directly at 561-367-1817.
TROPIC CAY - BRAND NEW CONSTRUCTION