Estate Planning For Extended Families

I recently spoke at a meetup about Bowen family systems theory—the idea that the family is an emotional unit and uses analytical-style thinking to describe family interactions. My presentation focused on an extended family and the dilemma the patriarchs of the family faced in how they were going to divide up the family assets.

One Big Happy Family?

[Note: Names and details have been changed to protect client confidentiality]

At the top of the family tree were David and Sarah, happy grandparents who wanted to make sure their children and grandchildren were taken care of. They had been married for just over 30 years. It was Daniel’s second marriage—the first yielded one daughter, Pamela.

David had been a successful businessman, starting the family business and building it up to a net worth of over $7 million dollars. He and Sarah had also amassed approximately $5 million in their investment portfolio. Upon his retirement he retained ownership but turned over day-to-day leadership of the company to his first son Dave Jr. Dave was married to Katie, a registered nurse. Dave Jr. and Katie had a young son and daughter.

David also had two other sons, Kyle and Tyler. Kyle had just married Zoe, the only child of a retired Fortune 500 CEO with substantial assets, likely far more than even what David and Sarah had. Kyle set out on his own path and had just joined a law firm after passing the bar exam, while Zoe was an at home mom-to-be expecting their first child.

Meanwhile, Tyler, the youngest son, had dropped out of college. He was struggling to make it as a social media influencer while sharing an apartment with three roommates and working at an art store to pay his living expenses.

Not to be forgotten was David’s daughter from his first marriage. Pamela, a teacher by training, had just had her first child. Her husband worked as an accountant. While their careers offered a reasonable quality of life, they both still needed to work if they wanted to save for both their retirement and their child’s college education.

Differing Needs

Dave Jr. had worked hard and became an indispensable part of the company in his own right, to the degree that he was now the public face of the family business. However, his father still owned the company. With his critical role in the company’s success, Dave felt it was only fair that when the time came, he would inherit the entire company in addition to splitting his parents personal assets with his brothers. After all, in his view he had put in the most effort and worked the hardest out of his siblings, so he felt that he should get the lion’s share.

With his wife in line to inherit her family’s fortune, Kyle was in a good position. Notwithstanding any prenuptial agreements, he probably was going to be fine without any inheritance from his own parents. Kyle had no interest in the family business and was not vocal when it came to the topic of inheritance.

Tyler, on the other hand, had the most uncertain financial future. While he had no role in the company his father had founded, his position was that the family business belonged to the family as a whole, and not any single person. As such, he expected an equal share of everything.

Common Outcomes In Estate Planning for Large Families

Typically, in a family estate scenario, the parents decide on their own how to divvy up the assets. They might or might not have a discussion with their children. They then pass this information to their attorney and financial planner, who draw up the documents. The parents might choose to tell their children the details, or let the kids find out when the will is read by the executor of the estate.

I’ve also heard horror stories of parents who do no estate planning, because they never get around to it or they decide to let the kids handle it. Then when they pass on their estates become subject to the tender mercies of the inheritance laws in their jurisdictions. In this scenario it could take years before the children see anything.

Things To Think With Estate Planning For Large Families

When I first met with David and Sarah, they asked for my help because they didn’t want to have what they anticipated would be an awkward conversation with their children about how the family assets would be divided. They loved their children and didn’t want to see them fighting over the money. They also didn’t want money to stand in the way of the relationship between the siblings. So they thought the best way to go about it was to make the decision on their own. They hoped that this way, the kids would respect their parents’ decision.

The initial idea they brought to the table was to leave 10% of his assets to Pamela and 30% to each of the three sons. What was uncertain was how the family company and their home would count towards that calculation. Would these items be separate assets of their own, or just part of the entire portfolio?

The parents were also unsure on whether to consider how much each child needed and deserved. While “deserving” is purely subjective, in this case it was clear that Kyle needed the money the least, while Tyler needed it the most. Also, Dave Jr. was running the family business but had little personal wealth of his own. So a case could also be made for him, or even Pamela  to be the one who needed the money the most.

How I Am Helping David and Sarah

As a financial life planner, I am not there just to do paperwork for them. My task is to work with them towards a solution for their family that will fulfill their goals. To accomplish this goal, these are the significant points I emphasize:

Separate Love From Money

Regardless of how they ultimately choose to divide up their assets, there is no approach that is going to be perceived as fair by everyone. Therefore it is important to separate the concepts of money and love. I’m encouraging Daniel and Sarah to emphasize and communicate that they love all their kids unconditionally and that any difference in assets left to each child was not an indicator of more or less love for them.

Include Everyone In The Conversation

David and Sarah wanted to make this decision fully on their own. But with all their children being fully grown, I felt that it would be helpful for them to get input from each child. However, I don’t advocate gathering input with the whole family gathered together, as such meetings have a tendency to be personality-driven. Instead, I am encouraging them to talk to each child separately first.

Transparent and Open Communication

It’s not enough to just get an idea of what each person wants. For David and Sarah who are creating the estate plan, it’s just as important to get a sense of their whys, as well as their underlying values and priorities. This way, when they make their decision on how to split their assets, they can do it with a clear vision of what they want for their children and convey their legacy to their descendants.

I’m still working through the process with Daniel and Sarah, so the outcome is still a work in progress. But I think that with these points in mind, they will have a very positive result.