The start of a new year usually heralds change. For some family leaders, changes in relationships and a range of external influences affecting family members have them concerned about potential impacts on family wealth.
In this article we share what’s worrying some patriarchs and matriarchs and the discussions we’re having about safeguarding family wealth as family members enter new phases of life and their relationships change.
Family get-togethers are often telling of the truth behind relationships. While arguments are an obvious sign of discontent, it’s often what’s not being said that indicates all is not well in some family relationships.
While existing relationships can be concerning, so too are some emerging relationships.
As you get to know your potential future in-laws, it’s not uncommon to feel considerably less besotted than your doting offspring, and wonder where it will all end up.
There is certainly reason for family leaders to worry as there can be considerable and far reaching financial (and legal) implications associated with people entering or exiting the family group.
While relationship breakdown is among the more common family issues where inherited wealth has the potential to be split 50/50 in a divorce settlement, there can also be unexpected extended family matters which can impact a family’s wealth. (You can read an earlier article we wrote for Executive Strategies about divorce, re-partnering and personal wealth here.)
For example, an adult child may be happily married, however their respective spouse will very likely have relatives of their own.
While that person may not be directly related to you, without the correct estate planning and asset protection structures, family wealth inherited by your adult child could be at risk of leaving the family line.
For example, in the unfortunate situation where the beneficiary of family money (your adult child) was to pass away, they would more than likely leave their substantial inheritance to their spouse. In the absence of any shared children that could be the point where the wealth leaves the family.
Of further concern would be a situation where the spouse, as your child’s beneficiary, was to pass away as well. Your family money could be bequeathed by them, to someone whom you have no relationship with and may not even know.
We understand, it’s a morbid thought. However, the fact remains unfortunate (and heartbreaking) things happen and it’s important to be informed and prepared with clear arrangements in place for when they do.
At a minimum, advice and discussion is needed around estate planning. This may involve including a family line provision in the Wills for immediate family members, asset protection structures such as testamentary trusts that give discretion to an executor when making decisions for protecting family wealth and distributing it to beneficiaries.
Similarly, rather than gifting money to family members (for example to assist adult children to purchase their first home), formalise your money arrangements. This could include having your lawyer draw up a loan document. Even if you have no need for the ‘loan’ to be repaid, you will have legal recourse for pursuing the return of the money, to you or your estate, should a relationship breakdown in future.
The discussion above has tended to focus on relationship breakdown, however there are other issues that can impact on family wealth planning. Family members (direct or in-laws) may have difficulty in managing money. Therefore, putting in place appropriate structures and people to manage those structures may be critical to sustaining family wealth.
Planning should also include appointing powers of attorney and executors of the estate.
Clear and careful consideration is necessary when selecting the people who will represent your best interests, in matters relating to health and finances, when you are unable to do it for yourself.
At a minimum, these people must be trustworthy, capable and willing to perform these duties on your behalf.
You should regularly review who you have appointed to these important positions. A personal falling out caused by anything from a difference of opinion to dishonesty or legal issues, and serious health matters affecting their competency or if they pre-decease you are among the range of reasons for changing your power of attorney or executor.
The key points of this article discussion are these:
If you are worried about the potential for family relationships to adversely impact your family wealth or if you’ve lost confidence in your appointed power of attorney or executor of your estate, you should seek advice without delay and implement the necessary changes.
Navigating family relationships can be delicate as emotions can get in the way of important financial decisions for securing the best interests for the entire family into the future. As financial advisers we’re accustomed to dealing with the sensitive nature of these discussions and guiding decision making based on the facts of your financial circumstances in context of your personal values and wishes.
For more information and to discuss financial considerations and impacts of changes in family relationships on your family wealth and assets, please contact Brett Cribb, Steve Nicholas or James Marshall on +61 (0)7 3007 2007, alternatively please email info@stratusfinancialgroup.com.au.
Stratus Financial Group helps professionals, executives, business owners, families and retirees manage their complex financial affairs and coordinate their professional advisers.
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decisions