An important part of financial planning is advising clients on the transfer of their wealth from one generation to the next. Of course, knowing the technical details, current tax laws, estate planning laws, and treatment of different account types is a given part of the job. But when it comes down to making a plan, what stops most clients from moving forward has not been lack of knowledge – it’s not knowing how to address differences between their children.
On the special needs planning side of our business, this can be spelled out very easily: There is a child with a diagnosis who will need known financial assistance and support for their entire life. But what about when our children have different needs, with no known diagnosis, as is the case for many families today?
Equitable, not equal
My kids are three and six, and they are in the stage right now where if you do something for one, you must do something for the other. Eli is all boy and into trucks, trains, and Spiderman. But if Rylee wants a princess for Christmas, Eli wants a pinktastic princess as well. And they are young enough that they do not understand that if Eli gets a Spiderman doll, and Rylee gets a Pinkalicious doll, those are equitable (if not equal) gifts. No, my gifts right now are doubles of everything.
When doing my estate planning, however, I am not looking for an equal solution. I am looking for an equitable solution. Because as my kids get older, it becomes more obvious that my son (who has a congenital brain disorder) will need more support than my daughter.
I tell my clients that estate planning often comes down to equitable, not equal, solutions.
Encouraging clients to begin these discussions early with their heirs can help to prevent hurt feelings later. If they have multiple heirs, and they have already decided that they need equal solutions for all, good for them! But if there is a little niggling of doubt, that they may have one child or grandchild who will need more help financially than the other, you can help them approach their dilemma.
Encourage your clients to be realistic with themselves about the capabilities of their heirs. This is a message I have had to remind myself of over and over again. As they think through this, remember there are legal supports they can provide for their children as well. So, they may want to provide money and supports throughout that child or grandchild’s lifetime, without providing access to one lump sum.
When special needs are less obvious or nonexistent
Determining equitable distributions for offspring who do not have disabilities but have different earning power or other needs is less clear cut.
Capitalism is the backbone of the U.S., and we’re often judged by how much money we make. However, not every family or family member embraces this predominantly capitalistic culture. Some value and enter the ministry, teaching, the arts and many other career paths that may not be as financially lucrative as the fields their siblings or cousins pursue.
Other individuals are afflicted by hidden disabilities that often greatly hinder their financial success. This can include ADHD, dyslexia and anxiety.
This is also something I’m intimately familiar with: My daughter has ADHD and anxiety. I have no idea what her future will be, though she shows great interest in being an artist. I would love to help her on a path that is rewarding and takes advantage of her neurological “differences” rather than penalizing her for them. In addition, I will teach her how to budget and manage money, pay bills, and set goals and limitations for herself. Then I will provide her with some scaffolding to help support her (financially) if she needs extra help.
The greatest gift
It’s our job to show our clients different paths and ways to express their values — not to determine what their values actually are. As financial advisors and planners, one of the greatest gifts we can give our clients is to make sure that their finances and estate plans reflect their values.
How do we do that? Step one is to sit with clients and give them a framework for discussing and writing down their values. Once they have done that, discuss how they would like to carry out those values. Would they like their money and estate plan to reflect their values? I have found that 90% of the time the answer is yes.
The next step is to look at the different ways they can carry that out. Some clients feel that providing money for an education, a down payment on a house, or other (limited) but big-ticket items is the way to move forward while still promoting financial responsibility. Others feel that ongoing help (similar to an allowance) is more helpful. Still, others want to give one lump sum and trust their children to allocate it as they feel appropriate.
You can guide your clients through how each option would impact them not only from an estate planning perspective but also from a psychological and developmental perspective.
One size doesn’t fit all
Some families engage therapists and life coaches to help their children build the life skills necessary to handle the money; set goals for the money; and involve the children in the process. Other professionals involved in your client’s life may include an estate planning attorney, a special needs planning attorney, and a CPA to provide tax advice. As a financial advisor, you can work with these professionals to help families achieve their life planning goals.
Meanwhile, some families want their children to reach education milestones (such as earning an MBA) before entrusting them with large sums of money or welcoming them into the family business.
It’s also important to encourage clients to think about what assets may work best for different children. An asset such as a house might be the best inheritance for one child because it would give them a place to live and some stability. Leaving a pension or 401(k) account may be the best option for another child. Another child may already be involved in running the family business and may appreciate receiving that — or the funding to start their own business.
Communication is critical
Once a family has a plan in place, including a last will and testament, the client can create non-legal documents to communicate their post-mortem wishes for their children or grandchildren. For example, an ethical will, provides a forum to spell out one’s values, wishes for the future and actions they would like to see future generations make. Your client may also wish to write individual letters (to be delivered upon their death) to each of their heirs that spells out the specific hopes and dreams they have for them.
It is becoming much more common for parents to provide different solutions for different children. The best way to prevent “bad blood” is to keep the lines of communication open with all their children.
A parent may not wish to disclose the exact amount a child with greater financial needs would receive. Still, speaking to the child about their needs, goals and what kind of supports they rely on (if the child is able to partake in such a conversation) can help the parent ease into a discussion about what they wish to provide for that child in the future. If the parent is already planning for or providing supports for this child into adulthood, they should speak to their other child(ren) about what supports their sibling needs.
The father in one family I work is looking for an absolutely equal solution for his three children. When we spoke to the three kids, it became clear that one of them could really use the family home in which they were raised. The other two kids wanted to see the house end up in their sister’s hands. But Dad said absolutely not.
The family decided that the solution would be to provide some leeway in the document for the trustee to work with the three kids to give the daughter the right of first refusal to the house, with the siblings determining the value and how to “settle up” accordingly.
Every family is different, and families’ needs and wants can also change their minds over time. The best thing we can do as their advisors is to listen without judgment and remind them that equitable does not have to be equal.
Kristin Carleton, CEO of Special Abilities Network, provides special needs planning by addressing the funding supports, legal strategies and clinical supports necessary for every member of the family. Her son Eli was born with a congenital brain disorder, which ignited her passion for planning for her son and daughter. Her life’s purpose is to pave the way for other families to be the heroes of their own stories. Kristin is honored to see families living their best lives and to be a part of those supports. She can be reached at 919-433-7713 or firstname.lastname@example.org.