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Intergenerational Estate Planning Comes of Age


More than a decade into the intergenerational transfer of the $10.4 trillion that in 1993 Cornell economists Robert Avery and Michael Rendall forecasted would pass from one generation to the next between 1990 and 2040, financial planners and wealth counselors are detecting a subtle trend. Americans are more willing to talk about their finances, and the rich, in particular, are interested in planners who can help both them and their offspring.

"The taboo of talking about sex was lifted in the 60s. In the 70s and 80s, the taboo of talking about death seemed to go away. In the 90s and the first bit of 21st century, we are loosening up and more able to talk about money," said Dennis Pearne, Ph.D., a wealth counselor in Natick, Mass. "The door's open for frank discussions about estate planning."

In fact, a study by CEG Worldwide of New York highlights Americans' interest in protecting their families from the burdens that can arise from a lack of financial planning. More than 41% want financial and estate-planning services from their adviser. And, according to high-net-worth researchers Russ Alan Prince and Hannah Shaw Grove, the wealthy are willing to pay for this advice. The researchers report that in 2002, investment generalists stomached a 51.8% revenue decline - but revenues for wealth managers offering advanced planning skills rose 9.3%.

But in order to serve the wealthy, advisers must be willing to discuss family dynamics in addition to family assets. CEG Worldwide research consistently has found that advisers with relationship-based practices out-earn product-focused advisers. The stakes could be higher, still, if when cultivating these relationships, advisers reach out to their clients' children with the hope of keeping the assets under management when the client dies and passes wealth onto the next generation.

Historically, the incentive to reach out to the next generation while the wealth creator is still alive has been low, simply because they don't usually possess as much wealth as their parents. Not surprisingly, Prince & Associates of Shelton, Conn., determined that only 3.6% of heirs inheriting at least $1 million or less continue to use their parents' financial adviser.

Boston-based MFS Investment Management has offered Heritage Planning, a program that features resources for issues ranging from saving for college and managing a job transition to evaluating long-term care insurance and caring for aging parents.

"Every study shows investors' No. 1 goal is retirement, but if you look at the way the fund industry is traditionally marketed, you'd think retirement was investors' only goal," said Jeremiah M. Potts, a consultant to MFS. "Investors are not out to accumulate the biggest stash of money, but to support a variety of life goals."

In fact, initial research MFS conducted with Roper Starch prior to the launch of Heritage Planning showed 40% of investors were saving to care for elderly parents and 36% to help pay their children's college tuition.

Wealth management companies, too, are developing relationship-building tools for advisers. "It's no longer just about offering a good product. It's about helping the adviser to grow his or her practice and develop new skills," said Carol Larco-Murzyn who developed a service called "Exploring the Family Dynamics of Wealth" for The Phoenix Cos. of Hartford, Conn.

At the program's core is assistance running a family meeting, a gathering to identify family values and develop a family mission statement to serve as the foundation of a wealth transfer plan. Said Larco-Murzyn, "With great wealth, there are many emotional issues that as an adviser you must deal with before you can begin to put the financial plan in place."

Although family meetings serve as an opportunity for advisers to develop a relationship with the second generation while their parents are still alive, Potts noted that many advisers are initially skeptical. "They look at a very limited upside and significant downside. What if they hit a nerve that ticks off their clients? If the meeting is handled insensitively and poorly, there's a potential for that, but that's true of any conversation," he said.

Potts favors building the first family meeting around a specific, non-threatening theme to facilitate the dialogue. He says 529s are a perfect way to engage in constructive intergenerational dialogue, rather than one dealing with more sensitive topics, such as long-term care and death.

Thomas R. Livergood, CFP, president of Family Office Management of Oak Brook, Ill., noted that while any family can benefit to some degree from a family meeting, the key to ongoing positive communication is that the family view themselves as a "financial family." That, he says, tends to happen only with closely held business owners and the very wealthy, i.e. those worth $20 million or more.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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