How to successfully approach estate and succession planning with family members Featured

9:00pm EDT May 31, 2011
How to successfully approach estate and succession planning with family members

Most people are not comfortable talking about their finances, even with family members. Parents especially can have a fear of sharing their estate and succession plans with their adult children; they’re afraid of upsetting harmony in the family, or they’re sometimes avoiding the perceived greed of hearing their heirs talk about “I want this, I want that...”

Yet, if they’re not communicating, then really it’s an artificial harmony, and the family won’t understand the effort the parents went through to create a fair plan, says Ricci Victorio, managing partner of the Mosaic Family Business Center.

“One of the most important aspects in planning for your family legacy, whether there’s a family business or just significant wealth, is communication,” she says. “Parents often use the family holidays, like Thanksgiving, to explain their gifting strategy. But these kind of family settings are almost always inappropriate for discussing emotional or delicate issues. The result is that the family will dread attending the next holiday or family event because they remember the blow-up that happened last year.”

Fortunately, discussing finances with the family and maintaining family harmony don’t have to be mutually exclusive. A better setting for those kinds of discussions is in a “family council” meeting.

Smart Business spoke to Victorio about using a family council to tackle the often daunting task of communicating with family members about estate and succession planning.

How can the process of family decision-making become easier?

One of the best venues to discuss the business of the family is in a ‘family council.’ What we’ve learned is that people should separate family gatherings from family business discussions. A more formal setting encourages a more professional and organized approach, often by having advisers and a facilitator present to help explain things in a way that won’t upset or confuse.

Unmet expectations or anxiety about the unknown can seriously undermine family harmony. Whether there is conflict or not regarding the succession plan or the division of assets you can sidestep potential years of tension and upset by tackling these tough discussions step by step with the guidance of a trained facilitator. Knowing, even if you don’t like the answer, is most often better than being in the dark.

How does a family council work?

Once a family makes a commitment to using a family council, I like to help them develop a ‘Family Charter.’ It’s a statement of purpose and vision and helps to define the core values that are important to communicate to the next generation. Objectives and goals are defined, which helps to keep everyone focused on creating an agenda for each meeting. With regular meetings and the integration of younger family members as they mature, this mechanism for problem-solving and planning for the future will be passed on to each generation long after it was initially created, contributing to building the family legacy.

Once I get to know the parents and their plan, what they want to communicate and what they’re comfortable communicating, I survey each of the involved family members. I ask such questions as: What do you know about your parents’ estate plans? What do you want to know? What is your vision of the future? If there’s a family business, to what do you attribute its success, and what are some ways you can think of to perpetuate that?

Another way families can better communicate is to learn one another’s personality styles. Understanding what kind of leadership styles are natural to each individual can make it clear where there might be points of tension. Often, conflict happens due to different personality styles, rather than it being intentional. Initiating a family council by learning about the best ways to approach one another as difficult decisions are made makes it much easier to talk about other complicated issues.

What kinds of issues are discussed?

In laying out an estate plan — especially one that is quite involved or intricate, where a family business or any kind of considerable assets are involved — the more complicated it gets, and the more you need to layer in the pieces of information. We can explain the concept of the estate plan and the succession plan without using numbers. Then it becomes more clear why, for example, siblings who are involved in the business are going to inherit voting stock in the business, and the non-active kids might either receive non-voting stock or other assets like real estate or securities or something of a fairly equitable range.

A family council can’t just be convened one time. It really needs to become a part of how you address the business of the family. And it may not always be related to estate planning — it could be used to talk about difficult family matters, charitable gifting, or other ways to support the community. You can also use it to introduce family members to a financial planner or to broach the subject of insurance or investing to help the kids learn how to handle the money they’ll inherit. A family council sets an atmosphere where everyone knows they’re going to be professional and courteous, even when making difficult decisions.

Who should consider a family council?

There are various levels of family councils, and I would suggest that families of more than one generation who have a family business or significant assets absolutely must consider this kind of vehicle. Every family needs to be able to communicate what their planning is to those impacted. The worst thing that can happen at the time of loss of a parent is to also experience the shock and surprise of not understanding what they had intended. You don’t want your kids resenting each other because they didn’t understand why Mom and Dad made the decision they did.

When someone says, ‘I’d rather just let them figure it out when I die,’ it’s setting the stage for eventual conflict. What kind of legacy is that? This isn’t the way you want to be remembered. Leaving a legacy of love and harmony, and then security and business success, would be any business owner’s dream.

Ricci Victorio is managing partner of the Mosaic Family Business Center. Reach her at (415) 788-1952 or