The Hardest Part of Estate Planning: Sharing the Plan

November 28, 2023
  • Private Banking
Our 2023 Private Business Owner Survey revealed that nearly all business owners have an estate plan, but almost none of them have discussed it with their families. In this issue’s feature article, Adrienne Penta, the executive director of the BBH Center for Women & Wealth, explores five common communication obstacles and how to navigate them.

Communication and trust are critical for families who thrive in the long term. Unexpected or unpleasant revelations in an estate plan are a quick way to familial unrest.

Estate planning for business owners is especially complex, as their significant illiquid assets often result in a large estate tax liability and require sophisticated planning to successfully transfer ownership. Moreover, after the death of an owner-operator, not only is there ownership succession, but there is also succession in the management of the company that can make planning even more complicated and evoke strong emotions within the family.

Our inaugural Private Business Owner Survey found that while 98% of private business owners have an estate plan, 94% have not communicated this plan to family members. The top reasons for this lack of communication include:

As my colleague Ali Hutchinson and I wrote in “What We Believe: Principles of Successful Wealth Planning,” communication and trust are critical to preserving family wealth and values. To help families open these important lines of communication, we examine the top five reasons business owners report for failing to communicate their plans and provide actionable advice on how to overcome these common hurdles.

1. But the Plan’s Not Perfect Yet

Let’s start with the most significant reason business owners don’t share their plans: 49% fear that the plan might not be right. This concern underscores the business owner’s own discomfort with the plan. If the plan does not feel right, it might be time to revisit the underlying values and purposes that motivated the planning and whether the plan is in alignment with what you care most about.

Too often, estate planning starts with how to create a tax-efficient result, instead of what the family would like to accomplish and why. Knowing the “why” – or said differently, the values – that underpin planning is critical to creating a plan that meets a family’s objectives and allows for long-term success.

Business owners often spend time thinking about the company’s values, or mission, which often intersect with the family’s values. If estate planning did not start with a conversation grounded in the family’s values and the business’s mission, then it might be the source of uneasiness with the plan and time to revisit the underpinnings of the planning.

Knowing the “why” – or said differently, the values – that underpin planning is critical to creating a plan that meets a family’s objectives and allows for long-term success.

If the plan does appear to accomplish your purposes and is in alignment with your values, then it might be the right plan for the time being. There is always an opportunity to revise and finetune the parts of your estate plan that are revocable. Just because the plan might change in the future does not mean you should not begin communicating it.

Unlike the dramatic scenes in the movies, there should be no big, all-inclusive family summit when the entire plan is revealed (resulting in shock and awe). The best communication plans are layered, starting with smaller amounts of age-appropriate information and building from there. With young adults, begin with the information that you are most comfortable communicating.

For example, it might be most approachable to start with the parts of the plan that are irrevocable (e.g., a trust created for grandchildren’s education) or the philanthropic elements (e.g., a family foundation or donor-advised fund).

In addition, you don’t have to tell everyone the same thing at the same time. Maturity and life experience should be taken into consideration. Before delivering any information, consider how your audience will receive it, how it might make them feel, and the questions they might have.

2. But I’m Not Ready

About one-third (36%) of business owners have not communicated their estate plans because they feel unprepared to answer questions likely to come up in discussions. First off, you are not required to share anything that you are not ready to discuss. Know your limits and how much information you want to share before starting the conversation.

If faced with an inquiry you are unprepared for or just don’t want to answer, you may simply say: “I’m not quite ready to discuss that with you, but I will someday,” or “I am still working on my plans, and I’m not sure.” One client might tell her children: “I’m not going to tell you that because I don’t think you need to know, and I’m concerned about how it would change your thinking.” Prepare an answer that feels right to you.

Questions that arise in these conversations often provide insight into what your children and others are thinking. Another possible response to a tricky question is: “That is a great question. Why do you ask?” By uncovering the motivation for the question, you can embark on a productive conversation.

With adults, you may ask more sophisticated questions, such as: “How do you think the answer will change your perspective?” You will certainly learn something valuable and perhaps what prompted them to ask in the first place. Having a few prepared responses in your back pocket can make these conversations less scary.

What is the right age to give the next generation substantial information about the family’s wealth?

The answer to this question is highly personal and should be determined by the maturity and preparedness of those involved. This article primarily addresses communication with adult children, but “What age is the right age?” is a fair question – and one that is not easily answered. With the help of advisors, each family must decide when to bring each descendant into the conversation about family wealth – and eventually, when to reveal the family’s balance sheet.

I asked three experts about their philosophies on when to reveal this information to the next generation, and here is what they said:

“Starting at a young age, I encourage conversations about money generally – like budgeting, saving, and financial realities – but when it comes to talking about the family’s wealth and trusts, perhaps you wait. If the trust starts making distributions at age 21, I’d say start the conversations three years earlier. While I do favor preparing kids financially, I think that kids should be left alone to grow up and mature without the burden of their family’s wealth. Wait until your kids are launched to provide the full picture.” – Ellen Perry, author of “A Wealth of Possibilities”

“Business owners often use their intuition to tell them when to share details of their ownership transition plan, and unfortunately, this intuition usually tells them to wait way too long before starting a conversation with the next generation. This can create angst, as generally the next generation very much wants to understand the complexities of business ownership sooner rather than later. Private businesses are complex assets, and successors want to get started on learning how to be good stewards.” – Ben Persofsky, Executive Director of the BBH Center for Family Business

“It is best to think of this conversation not as a light switch – going from no information to all the information at once – and more like a process that unfolds over time. Engage your next gen from a very young age in age-appropriate conversations about what your family’s collective endeavors mean to you. This can be about sharing values, excitement about philanthropy, history, and the meaning of a family-owned business. Start early and don’t stop, even if the information about specific wealth or business ownership plans starts later. Find ways to talk about the meaning of wealth, not just the information.” – Debbie Bing, President and Principal at CFAR

“Children are often more intuitive about family finances than we give them credit for. I’m a proponent of starting small with easy conversations and general concepts, gradually adding complexity and more specific details while continuously gauging the child’s comprehension and reaction along the way.” – Ross Bruch, BBH Senior Wealth Planner

4. But I Don’t Know How to Start

Many business owners (29%) don’t know how to initiate a conversation about estate planning. Set aside time for these conversations in an appropriate setting. It is tempting to want to use family vacations or holidays for this purpose, but before asking everyone to leave the beach for a meeting about estate planning, consider whether your audience has the appetite and attention for this type of conversation during a festive family gathering. In most cases, they don’t.

Consider using Zoom to start the conversation rather than waiting for the perfect in-person moment. Surprisingly, some family meetings are more comfortable and effective virtually, as participants are in their own homes or offices and can take the time they need before asking questions or engaging in conversation. In addition, each person has exactly the same amount of space and presence on the screen, so virtual meetings can level the playing field for those who might have a bigger presence or take up more space in person.

Do less, not more, when discussing complex issues. When gathering a group of family members for an important conversation or family meeting, it is tempting to put a lot on the agenda. However, discussing challenging or emotionally charged topics, especially for the first time, calls for a simple agenda – for example, focus on just one topic, and keep it between 30 and 60 minutes.    

Instead of covering the entire plan, the balance sheet, the current state of the business, and the succession plan in a marathon day-long meeting, create a plan for layering the communication plan over an extended period of time. This allows you to check in with participants after each gathering so that you might understand how the plan is being received, what questions are arising, and if there are side conversations happening.

Rely on your advisors to help you create a communication plan. Estate planning does not end when the ink on the documents is dry: Your estate planning counsel or financial advisor should help you create understandable charts and easy-to-read summaries that will help you describe your intentions and values, as well as the trusts and other vehicles that you have created.

The next step is to spend some time thinking about what will be most important to your children to know now and how they might react to the information you have to share. Their current life circumstances, as well as how they experienced and understood decisions about wealth during developmental years, will affect their reactions. Spending time in advance putting yourself in their shoes might help you sidestep any potential issues and anticipate questions.

5. But I Don’t Want Them to Be Unmotivated

Almost one-quarter of business owners (23%) are concerned about demotivating their family members by providing more information about their assets and planning.

First, remember that a lot of financial information is available publicly. The internet is full of personal financial information for inquiring minds to access. For business-owning families, there might be information available about the value of the business or its economic impact on the community. Sharing information is more likely to correct false assumptions rather than provide beneficiaries with the feeling that they will receive an unexpected windfall.

Second, motivation comes from multiple sources, and the cause of long-term motivation to work and achieve is often derived from an alignment between one’s goals and values. It is easier for someone to stay motivated if they can understand why their actions matter and see how their activities align with how they view themselves in the world.

In other words, communicating about the family wealth and planning might run the risk of demotivating children or grandchildren if they feel like nothing they do matters. In her book “A Wealth of Possibilities,” BBH Senior Advisor Ellen Perry discusses “shrinking the big shadow” of family wealth, legacy, and success.

When a family runs a successful business, it often casts a big shadow that can subsume the aspirations, dreams, and interests of the next generation, as they might be seen as stewards of the family’s business, philanthropy, and legacy.

In these conversations about carefully considered plans, it is important to respect children and other next generation members not only as recipients of information and perhaps wealth, but also as independent beings who have a responsibility to reach their own full potential.

Conclusion: Good Communication Enables Successful Estate Planning

Discussing your estate plan with family members can be daunting; however, these strategies can help business owners and their families overcome these communication barriers. Knowing the underlying values of your plan and business, the limits of what you’re ready to discuss, and how and when to initiate the different stages of conversations is essential. Communication about wealth, planning, and values will help your family build a foundation of trust and cooperation, which will foster family harmony for years to come.

If you are interested in learning more about estate planning and communication strategies, reach out to a BBH relationship manager or wealth planner

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How Business Owners Approach Communication and Risk-Taking Infographic

In this issue’s “By the Numbers” infographic, we take a closer look at the statistics from our 2023 Private Business Owner Survey, particularly around estate and succession planning communication hurdles and how different genders view risk-taking in business.

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