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TRANSCRIPT

Talli Sperry: Good evening, I’m Talli Sperry, your moderator and leader of the Family Office and Family Legacy teams here at Vanguard. Welcome to tonight’s live webcast, “Preparing Your Family’s Wealth: What You May Have Overlooked.”

We’re glad you joined us for this important conversation that’s focused on managing your family’s wealth. Our experts will talk about the key component you may be overlooking in preparing your family members for financial responsibility. Tonight I’m joined by three very knowledgeable guests and wealth planning experts: Vanguard’s Kevin Wick, Heather Winslow-Walker, and James Parker. They’ll discuss how to ensure you are preserving your family legacy, how to start the conversation about wealth, and how to determine if your family’s prepared for the transfer of the wealth.

We’ll spend most of the webcast answering your questions, and we’d like to thank those of you who submitted questions in advance, and we encourage all of you to keep sending in questions as you’re watching. These conversations are designed to support and connect with the Vanguard community of investors, so we definitely want to hear from you, and we will get to as many of your questions as we can.

Now before we dive in, if you need to access technical help, it’s available by selecting the blue widget, and that’s on the left. And if you’re interested in learning more about Vanguard perspectives or investing, click on the green Resource List on the far right of the player, and there you’ll find additional investing insights.

And with that said, let’s turn to our guests. So as I mentioned earlier, we have three very knowledgeable guests with us. Tonight we have Vanguard Senior Wealth Planning Strategist, Kevin Wick; Vanguard Family Legacy Specialist, Heather Winslow-Walker; and Vanguard Senior Relationship Manager, James Parker. So welcome and thank you so much for being here tonight.

James Parker: Thank you, Talli, it’s a pleasure.

Heather Winslow-Walker: Thanks, Talli.

Talli Sperry: So our topic tonight is the important element of legacy planning that you may be overlooking. Heather is a family legacy specialist here at Vanguard. You work with our ultra-high-net-worth clients. Can you level set what family legacy is and maybe some of the challenges that you see our clients facing.

Heather Winslow-Walker: Yes, Talli. So I think that family legacy is best described by this common quote. “You prepared your assets for your family, but have you prepared your family to receive the assets?” And it’s the second part of that quote, have you prepared your family to receive the assets that really family legacy focuses on. And it gets into areas like have you communicated your values to the family? And that creates the bedrock or the foundation for all of the planning that’s going to come forward. Have you thought about the financial education in the family? Have you thought about what expectations you have of your children and what expectations they have of you and the different roles that a family member will play? And, finally, how to transition leadership within the family.

And when we don’t think about those very critical aspects, it puts an inheritance at risk over generations. And what I have personally seen in families is that it causes confusion, it causes anxiety and stress because people don’t know what to expect. And, honestly, down the road it can cause chaos, and we’ve seen examples of that.

Talli Sperry: Thanks, Heather.

Heather Winslow-Walker: Sure.

Talli Sperry: That’s really important for us to be mindful of.

Heather Winslow-Walker: Yes.

Talli Sperry: So Kevin and James, I know you work with our clients daily. Can you tell us a little bit about how you see them applying or struggling with these concepts? And, Kevin, maybe we’ll start with you.

Kevin Wick: Yes, I think one of the struggles or challenges that I see a lot is kind of the notion of family dynamics. And if you think about the kinds of things that come up sometimes around the family dinner table, magnify that sometimes greatly when you’re talking about issues of money, wealth transfer. So you’ve got different personalities, different ways of thinking, different experiences; and you have to figure out how to kind of meld those all together when you’re talking about important topics like this.

Talli Sperry: Great, really helpful. And, James, what do you see?

James Parker: You know, I think one of the things, obviously, Kevin pointed out a lot of great things that families struggle with, but I think also one thing that comes up that we often address is when. When should I begin sharing information about my estate plan, the purpose of these assets? When is the right time to begin sharing those assets or that information?

Talli Sperry: Yes, we do hear that a lot as we work with our clients, so that’s our common question.

James Parker: Yes.

Talli Sperry: Thank you all for sharing that.

James Parker: Sure.

Talli Sperry: All right, so those of you who are webcast regulars will know that before we take questions from our viewers, we like to take the pulse of our audience by kicking things off with a poll question for you. So since we’re talking about preserving family wealth tonight, we’d like to ask you about your experiences with the topic.

So on your screen now, you’ll see our poll question which asks, “What’s the primary reason 90% of all families’ wealth disappears by a third generation?” So your answers are lack of communication and trust, inadequate preparation, or other reasons like tax, legal, etc.

So if you take a moment to respond, we’ll come back to your answers in just a few moments. And while we’re waiting, we’re going to go ahead and answer our first presubmitted audience question. And this one comes from George who’s asking a pretty critical question that I’m going to kick to you, Kevin. He’s saying, “Why do a family legacy if they’re going to misuse the funds which are out of your control after you’re gone.” So let’s level set why bother.

Kevin Wick: All right, George is telling it like it is.

Talli Sperry: He’s spunky. Thanks, George.

Kevin Wick: Well I guess I’ll try and put a positive spin on that. That’s a reality certainly that many people deal with. But I would also say it doesn’t have to be that way, and I guess the purpose of our discussion tonight and purpose behind a lot of the work that we try and do with our clients is to show that there is a better way. And there’s a solution to those kinds of concerns. And with some careful thoughts, some work involved in planning, we can help our clients get there.

Talli Sperry: Great.

James Parker: Yes, you know, I think it’s interesting. Of all the years that I’ve done this and worked with numerous families, I can’t recall a time where I’ve had that question, “Why even plan for it?” I think one of the things, our clients and their families, they’re very successful. And so they have a successful mindset, and they want to make sure that their families are successful. So they are more often worried about the 10%, Talli, that you mentioned, rather than the 90%. And so tonight we’re here to talk about how we can ensure that those families are part of the 10%.

Talli Sperry: That’s really helpful, and that is where we want to help you get to. So our poll results are in, and these I think are interesting. So about 20% said “lack of communication and trust.” We had about 67% say “inadequate preparation.” So, Heather, I think that gets to some of your points. And then the other reasons were listed about 14%. Does this surprise you or is it consistent with what you see with our clients?

Heather Winslow-Walker: It actually surprises me a lot, and I think that we’re going to put up a graphic here that really shows the results of some research that has been done as to the common reasons why an inheritance is at risk by the third generation. And I think you said it was 20% that the audience thought was due to a lack of communication, but it’s actually 60% is due to that lack of communication. About 25% are due to beneficiaries that aren’t prepared to receive the inheritance, and then that last percentage, the audience is right on target, so it’s about 15% due to other reasons. It’s things like the tax or the legal structures.

But I also want to note that within that 15%, 12% of that is due to a lack of a common vision across the family. And so you can see that all of these factors are all related to what we call the human element, and that really ties into the legacy planning and the essential need for it. And it just calls out the need to focus on it.

Talli Sperry: I think that makes sense because sometimes we get so focused on the wealth and estate planning structure, the investments, we forget about the human beings as you noted.

Heather Winslow-Walker: We do.

Talli Sperry: And they are at the center of this particular concept especially.

Heather Winslow-Walker: Yes.

Kevin Wick: I think there’s an interesting, in my experience, an interesting parallel between the preparedness issue and the communication issue. I think from my experience, the parents oftentimes are worried about are their children or their others prepared. On the flip side, the children or who’s going to inherit are not hearing what they need to hear from the parents. And so there’s a connection there too, and it might depend a little bit on who we’re talking to. But they’re both important elements of what we’re discussing tonight.

Talli Sperry: Yes, that intersection is critical. James, what would you add?

James Parker: Well, I think that Kevin pointed out a very good point, right? It’s not that the communication is critical, but I think it’s preparing and make sure that they are up to speed on what’s happening. And so I think oftentimes we hear that children are concerned that they won’t live up to their parents’ expectations, while we also hear that the parents are concerned that the kids will not be successful. Right, that this will diminish their vigor and their success as individuals.

So I think it’s an interesting combination, and I think again this is a great opportunity to leverage these communication opportunities to discuss these very significant concerns.

Talli Sperry: Yes, and sometimes the fear prevents us from having a conversation that actually helps us accomplish our goals. Really helpful you guys, thank you.

All right, so let’s ask our audience another poll question. So we’re going to ask you why do so many families fail to communicate their wealth transfer strategy? So are you uncomfortable discussing money, don’t know where to start, or not part of the family dynamic? So if you can take a moment to respond, and we’ll get to your answers in just a few minutes. And so let’s take another presubmitted question in the meantime.

Heather, I’m going to throw this one to you. And this is Scott from Dartmouth who’s asking, “What single piece of advice would you give to someone to preserve family wealth while not diminishing ambition?” So you were right on target with Scott.

Heather Winslow-Walker: Good, good. And hopefully we’ll give lots of different tips tonight and best practices, but if I had to pick one, let me just go back to that communication piece for a moment. And I also want to piggyback off something that Kevin said around that fear of the family dynamics, and I think that that’s why families often hesitate to step into these kind of conversations.

But what I find in my work with families is that what they really struggle with or what beneficiaries want is just information. So when you think about that communication, it doesn’t have to get into the family dynamic space all the time. And, in fact, very often in my work it doesn’t. It’s really about can we start sharing information, and can we start sharing it a little bit earlier because we need to plan our lives. We need to know what’s expected of us so that we can carry forward and really support you while still carrying out our purpose in life.

Talli Sperry: Yes, and sometimes we even hear clients fear talking about the numbers, but we don’t even have to talk about the numbers to educate people on concepts they’ll need to know. Kevin and James, could you add in here a little bit.

James Parker: Yes, I mean I think, to Heather’s point, we want to start as early as possible, right? So it could even be kids who are in grade school, right, who teaching them about allowances and activities they do around the house. Like they can begin to learn the value of money and what it’s all about. So it doesn’t have to be very planned out. It can be very inherent in activities that the family does.

Talli Sperry: And very developmentally focused too.

James Parker: Yes, exactly, exactly.

Kevin Wick: I think related to Heather’s point on sharing, I think about setting expectations, and they’re probably closely related. But that’s part of that information sharing and knowledge sharing. What does mom or dad expect of me? And, again, that’s two-way communication there as well. But some level setting, setting expectations on goals, objectives, hopes, dreams, all that sort of thing needs to happen along the way to be successful at the end of the day.

Talli Sperry: Great. So our poll results are in, and so when we ask our audience why do so many families fail to communicate with respect to wealth, here’s what they said. They said about 44% were probably uncomfortable discussing money, 27% didn’t know where to start, and 28% found it wasn’t part of the family dynamic. You’re nodding your heads. Is this exactly what you see with our clients?

Kevin Wick: Yes, I think so. Very close, very close.

Heather Winslow-Walker: Yes, yes. And I see that families just don’t know how to get started within that mix. And one helpful tip, what we often hear families doing and actually beneficiaries complaining about is that families try to have these conversations 15 minutes after the Thanksgiving dinner. So they try to just fit them in.

And one way to really get family communication going and really have time set aside for this is to think about a periodic family meeting, even if it’s only once a year. When I’m working with families, I usually ask them to think about the complexity of their portfolio, the complexity of their estate, and the age of their children in thinking how often do we need to meet. But even if you can only do it once a year, that’s a good starting point.

Talli Sperry: Great advice.

Kevin Wick: If you think about how much time generally we put into things like our financial planning and putting together an estate plan, sometimes you need an equal or close to equal amount of time put into this kind of topic. And, yes, the 15 minutes after a holiday dinner just is not going to cut it.

Talli Sperry: Yes, especially when you get into some of the layered concepts that come to a merge.

So, Heather, we have a live question; and this one is from Joel. And he’s asking, “Would you treat each child equally even though they’re not each responsible with money?” So I know you hear this one frequently. What do you say?

Heather Winslow-Walker: Yes, and I think there’s a common concept that we talk about in the office is that you may not treat each child equally, but you want to treat them fairly based on what they can handle and what they are equipped to do. And also thinking about what role do you want them to play in your future legacy. What role do you see them taking over? And that is part of the preparation then that you need to do with each child.

Talli Sperry: Great. Would you guys add anything else?

Kevin Wick: Yes, I think I often come in from the estate planning angle, and oftentimes there’s this general mindset or expectation from, again, the parents’ standpoint, “I need to treat everyone equal.” And that can be a terrific goal. It might not be appropriate in every family circumstance and recognizing that you can vary from that based on needs, ability, all that sort of thing.

But I would say if you’re going to stray from that, then talk about it. Communicate the whys so at the end of the day, hopefully there aren’t hard feelings, resentment, things like that that come out of wealth. “I got less than he or she did.”

Talli Sperry: Or great mysteries at a time of death, right? Yes.

James Parker: And that can actually further the demotivation in the children, right?

Kevin Wick: Yes.

James Parker: So I think use this as an opportunity to empower the children to, again, focus on that success, to have that success mindset.

Talli Sperry: Great, so we’re sparking a lot of discussion, which is awesome. Please keep these questions coming. This is for you, so we want to hear what you want to talk about tonight.

So I’m going to ask this question from Helen, and she was asking, “How do you extend wealth past the third generation?” So we’ve put up the slide; now we want to know how to make sure we’re in that 10%. So, Heather, where would you start us off?

Heather Winslow-Walker: Past the third generation, you’re starting to get into probably larger families at that point. And the larger the size of the family, the more structure you need to put in place to be able to handle these kind of discussions and these kind of issues.

Talli Sperry: Can you define large?

Heather Winslow-Walker: Well you’re getting into the fourth generation. I mean you might be getting past 20 people, 20 to 40 people or even more. And as they’re moving into adulthood, you want to begin to leverage the strengths that each of those family members has toward the collective vision or the purpose of the wealth that the family has. And that again is another great opportunity for the family meeting.

But within those kind of structures, you’re going to need to start getting into things like shared decision-making and policies rather than just one-on-one discussions. You have to start to broaden your reach.

Talli Sperry: Great. So we have a follow-up question that I think we hear quite often. So, James, I’m going to start this one with you since you deal with our clients on a daily basis. “Should we tell our children what the family is worth, and how open should we be with them on that?”

James Parker: A very good question, and we hear that often. We hear it in every meeting that we are talking about legacy. And I often encourage families, you don’t start there. Many times that’s not the place to start. I think oftentimes the place to start is explaining the structure, where Kevin is the expert, is talking about the estate plan. Why we have the shared vision. What do we want this money to accomplish for not only the current generation but many generations down the road?

So you can start to introduce the concept of how much wealth the family has when the time is right, and oftentimes we see that. Again, it will vary. It’s very family-dependent, but I think we normally begin to see that in the late 20s, early 30s where we begin introducing the concept of how much. But I would encourage them to begin thinking about the structure and what we want this money to do as a family.

Talli Sperry: In your own individual family.

James Parker: Exactly, exactly.

Heather Winslow-Walker: And if I could just add on to that, Talli, just to reiterate a point that James said; a good tip to think about is looking for signs of stabilization in the next generation, and that’s your cue when it’s time to start talking about these things.

That could be stabilization of their own values. It could be stabilization of their careers, stabilization of their own families. And as James said, that often is in the late 20s to early 30s.

But if I could just take a minute, because I think the audience might be interested in some tips that we suggest that you do even earlier.

Talli Sperry: Yes, we love tips, don’t we?

Heather Winslow-Walker: So what you want to start to do, even as James said, within the preschool up to the elementary years, are really talking about your values, your general values as well as values around money. So you might hear things like, “Save, spend, give,” a lot. However, it’s also important to get out your general values. So some of the things that we hear in our families constantly are the value of hard work, the value of education, the value of taking risks within the family as they built the wealth, and those are the values that you want to get out in those early years.

As they start to go into teenage and to college years, you want to start to begin thinking about personal finance skills; and you would be surprised how many clients ask us with children in their 30s and beyond for information on things like budgeting or saving, saving for retirement, debt, and credit cards, taxes as they start working. Those are the personal finance that you want to get out earlier.

As they head into their 20s, focus on investment acumen. And as they head into their 30s, you want to start to get into experiences that will prepare them for their role in the family eventually with the legacy.

Talli Sperry: That’s really helpful, and I think we just got to why do so many people overlook this? Because there’s a lot to it, and we really need to take a layered approach and a very thoughtful approach.

Kevin Wick: Yes, and I think what we’re kind of building here is a timeline of best practices; and, obviously, that timeline’s going to look different in every family situation. But ideally you’re building sooner rather than later and providing some foundations and some building blocks.

And to answer the question from my perspective, I think the answer would be yes, but at the right time. And as we think about this timeline, as James alluded to, that would probably be much, much later as they’ve been prepared, as they’ve been showing those signs of being prepared and have their own house in order, so to speak. But if we’re striving to be part of that 10%, then that’s probably information that’s going to be needed much later on but needs to be delivered.

Talli Sperry: Great. So, Kevin, I have a follow-up question for you from Thomas. He’s asking, “Why is VNTC (the Vanguard trustee service) better than its competitors or other options?” So can you speak to that a little bit and can you define the service for our audience that might not be as aware?

Kevin Wick: Yes, so VNTC is the Vanguard National Trust Company, which is the entity in which we provide trustee services to our clients. I might be a little biased. I think we do a really good job. But it really stems out of Vanguard’s broader approach and those values that are so important from Vanguard’s overall investing philosophy to the focus on our clients and the focus on our clients’ families.

And so with that approach, and we’re doing everything that Vanguard, I think, does so well and bringing this down into a more narrow area perhaps of the market in clients who have created trusts and need help in managing those trusts, investing the assets, making distributions over the long term in a very straightforward way, low cost like Vanguard is to begin with, all of those things that you like about Vanguard already you’ll find espoused inside of our trust services as well.

Talli Sperry: Super helpful. So I think this is a good time to ask John from Janesville, Wisconsin, so thanks John for this question, and, Heather, he’s asking, “Does Vanguard have any guidance or information that I can use to talk to the family?” So we just got out a lot of information, but how do we start to live this?

Heather Winslow-Walker: Yes, well I think a good resource that we just elevated to our blog was an article on talking to your kids about wealth—how to do it and when to do it. And that will start to get at some of the guidelines that I mentioned.

So, again, just to reiterate, you want to be sharing values in the family, you want to be giving personal finance skills, investment acumen, and then giving them those experiences to really begin to practice of what they’re eventually going to have to take on.

Talli Sperry: That’s helpful and so that blog is on vanguard.com, and that one was by Jill Marshall, I believe. Is that correct?

Heather Winslow-Walker: It was. Yes, I believe it’s under the News & Perspectives tab on the Personal Investors website.

Talli Sperry: Great, so you can search for that tonight if you’d like kind of a recap of what Heather noted by the age brackets. Great.

All right, so let’s move on to Lauren from Cedar Rapid’s question, who’s asking, “Does Vanguard have advisors that can help in these areas?” So, Kevin, this feels appropriate for you.

Kevin Wick: Sure, short answer is yes, we do. Vanguard offers a service known as Personal Advisor Services, and we have literally I think an army of certified financial planners that work within that particular service offering. And what that amounts to is you’re hiring Vanguard’s advisors to actually manage your personal assets for you. And there’s a whole suite of services available to those clients.

We have a lot of clients at Vanguard who are managing their money on their own and doing great, and that’s terrific. For those who need some more help, Personal Advisor Services, or PAS as we call it, is perhaps the solution. And those advisors have access to a whole team of experts like ourselves seated at the table here today to deal with things like estate planning questions and tax planning questions and how to successfully move wealth from one generation to the next and many other topics as well, all under that umbrella of our Personal Advisor Services offering.

Talli Sperry: And our Family Legacy services are available for many of our ultra-high-net-worth clients under that umbrella as well, correct?

Kevin Wick: Correct, yes.

Talli Sperry: Great. So while we’re on resources, I’m going to ask—I love books, as you all know—so I’m going to ask what’s your favorite book. So, Heather, I’m going to start with you. What’s your favorite legacy book that you would recommend?

Heather Winslow-Walker: My favorite legacy book is Entrusted by Andrew Howell and David York, I believe, and it just gives a really good framework for how you start to transition those assets across generations. So that’s one of my favorites, and I’ll have more that I’ll share later, but that’s one of my key ones.

Talli Sperry: Good. Yes, that’s one of mine as well. James and Kevin?

Kevin Wick: Entrusted is the one for me too. I’m sort of a structure guy, and I agree with Heather’s comments there, yes.

James Parker: Yes, I think Entrusted is a great book. I think Preparing Heirs is also a very, very helpful book. I think it also gives, the one thing I like among other things that I really like about it is it gives examples of where there have been family who may have gone a bit astray and how they have used different techniques or finding what their passions are and to use that to really invigorate them and to empower them to be a successful contributor and continuing the wealth transfer.

Talli Sperry: It’s a good normalization book to help you as you kind of bump along the journey, right? Yes, really helpful. Good.

All right, so we’re going to go to a presubmitted question from Scott who is asking, “What’s the best way to distribute wealth to heirs over years rather than at one event?” So maybe, James, if you could layer in a few questions about family trust and maybe what you hear clients talk about, and is that a solution?

James Parker: Sure. I mean trusts are a fantastic way to preserve the wealth and to provide structure. I think to answer Scott’s question directly, I think the annual gift exclusion, we talk about that often. It’s a great opportunity for, I hear clients say all the time, “We really want to see our children and our family benefit from this wealth while we’re still here. We want to see them enjoy it and see the value that they bring to the table.” So I think the annual gift exclusion is one that is a great opportunity.

Trusts are phenomenal ways to help the children to, obviously, ensure that the money is, we always worry about taxes. So we certainly use trusts as a way to preserve the assets from taxes as much as we can.

But I think, again, trusts can be used for the right reasons; and so, again, it goes back to that communication. You have to make sure that they understand why these assets are in trust versus some others that aren’t. Again, it goes back to understanding the purpose behind the way these assets and the way they’re titled.

Talli Sperry: Really helpful. Kevin.

Kevin Wick: James highlights a discussion we have with a lot of clients about, you know, the difference and maybe even the value of giving assets while you’re still here where appropriate and where you’re comfortable. And that annual exclusion that you referred to is that $15,000 number that you can give to anyone you want to, to as many people as you want to, each calendar year without any tax consequence at all. And so, it’s a simple way to be able to help out family members, children, grandchildren, nieces, nephews, whatever the case might be.

And then, if Scott’s thinking more about when I’m no longer here, then, yes, the answer is some kind of trust structure in order to have the control that’s needed around it to then sort of dole that out over time in a way that’s meeting Scott’s goals in this example here.

Talli Sperry: And I think with that annual gift exclusion, I think, Heather, you often hear families start to test with smaller amounts, so they can take that chunk and see how do the family members do with that? And then maybe lean into further investing education or money management education.

Heather Winslow-Walker: Yes, one great tip that I’ve heard is giving them a small amount and allowing them to practice investing with it and see how they do. And sometimes even a great incentive is if there’s a goal at the end of that rainbow. So, I’ve heard tips where families do investing and, based on how they do, it determines the type of family vacation they get to take with that money.

Talli Sperry: Wow, fun!

James Parker: Right, yes!

Heather Winslow-Walker: And so, really, at, you know, young ages, teenage years, into 20s, 30s, you can do that to really get people hands on with investments in a low-risk way that really is very tangible.

Talli Sperry: That’s a fun tip, very fun. All right, cool.

Kevin Wick: Just one other thought on the hands-on approach that I’ve seen clients use is charitable giving and charitable giving as a family.

Heather Winslow-Walker: That’s a good one.

Kevin Wick: And there’s different ways to do that directly or through things like a donor-advised fund. But you get people together, there’s a financial element involved there as to how the assets either get there or invested but then also some work that needs to be done in deciding who are we going to give this money away to. It’s a great way to kind of delve in a lot of these kind of high-level topics we’re talking about today, you know, finding strengths and roles for people to play, the communication, the financial side of things. So it’s another great way to get at some of those kinds of goals.

Talli Sperry: Good decision-making.

James Parker: And one of the things that we spend a lot of time, and our families are very philanthropic, right, is how do we give back to our communities, and how do we help those who are less fortunate? And I think this really teaches the children the technique of the value of giving. What’s that mean to them? And so, it’s a very safe way, as Kevin said, to begin to test the waters a bit and see how their family is prepared to do this.

Talli Sperry: Good. So, this discussion is stimulating. So, Heather, did you want to add in on this?

Heather Winslow-Walker: Yes, I just wanted to piggyback one point there, and that is that whenever we’re raising our children, we often raise them to be independent. I have a 13- and 9-year-old, as you know, and so, certainly, my goal is for them to be independent as I launch them. But in families of wealth, and it ties particularly into the philanthropy, you want to encourage interdependence among your children, especially if there’s going to be shared assets down the road or shared vision like philanthropy. And interdependence means the ability to work together and share decision-making. And philanthropy is a great way to do that and to start to create those interdependent ties.

Talli Sperry: Really important point. Really important point.

Heather Winslow-Walker: Yes, yes.

Talli Sperry: Great. So, we have a live question, and this is for you, James. And Carol’s asking, “Should we start distributing our wealth before death, and how is it best to do that?” So, Kevin, you alluded to this earlier; I think our tip is yes. But, James, could you talk us through?

James Parker: Yes. I mean, again, I think the annual gift exclusion is a great opportunity. I think they can be outright gifts to the family members. The $15,000 a year, the annual gift exclusion, I think is one of the easiest and most tax friendly. But you don’t have to wait until your passing. The lifetime exclusion is both during your lifetime and at your passing, so you can begin to gift. I see a lot of families who, maybe the family, the children want to buy a house, and they use some money to help them with that. So, it doesn’t have to be literally writing them a check.

Talli Sperry: Cash.

James Parker: Right. Or cash, right. It could be helping them with buying their house, helping them, you know, we have a lot of very entrepreneurial mindset within our clients, and so maybe it’s helping them start a business. So, it can be other techniques that they can consider beyond just handing them a check or cash.

Talli Sperry: That’s a great point.

James Parker: Yes.

Kevin Wick: Yes. And if you’re doing it with a particular goal in mind that’s furthering the big picture kind of goals that we’ve talked about, you know, as a family as a whole, whether it’s focusing on education or buying a home or starting a business. I think that, yes, I agree, the answer is yes, where you have the assets to do so, where you’re comfortable doing so, all those kind of caveats.

But you think about being able to do that. If you’re in a position where you can help your loved ones while you’re still here, you’re doing it sooner than them waiting until you’re no longer here to receive the money. But you’re also here to see the benefit that comes from doing that, and that just sort of lifts families up and kind of builds this foundation of coming together and, again, common shared values, goals, all the things we’re talking about tonight.

Talli Sperry: It reminds me of an example of a client where one of their shared values was giving back to the community, and so they said to their kids, “If you choose a social services type career, we’ll subsidize your income. If you don’t, we probably won’t.” So that was an example of that fair but not equal, but the playing field was set out early, so people could make their decisions. So there are lots of ways to do this.

James Parker: Setting expectations.

Talli Sperry: Yes, exactly.

All right, so we have a question from Stephanie in Wilmington, and thank you, Stephanie. This is a detailed question, so I’m actually going to pause and read this word for word. And she’s asking, “In your experience, Heather, what is or are the most effective strategies that you’ve witnessed actually working to preserve wealth beyond the generation that created it, while also maintaining family harmony, knowing that children and grandchildren and beyond will end up in very different economic circumstances?” So, some might be more motivated than others or have more money than others. So, how do we balance all sides of the human and then the practical with the wealth and the investments?

Heather Winslow-Walker: So, there’s three things that I would focus on as a family, and we talked a lot about the education already, so educating on the financial acumen. The other two things that I would recommend are experiences, and I like to call those preinheritance experiences. So, what things can you practically give people to get hands-on right now to prepare them?

And so, it could be things like maybe they are starting to take on a piece of the investment management, or maybe there’s property that they’re going to inherit, and can they start to get involved in that property? Even grandchildren down the line can help to go set up a vacation home, for example, and you’re starting to involve them early. So, you want to be thinking about those preinheritance experiences.

And the third thing that I would say is really be focusing on developing leadership skills within the family. And many of our clients are leaders within the business world or within the community. And be very conscience of the talents that you have that you can begin to mentor these next generations on.

So those three things are good steps to not only build individual skills but that interdependence I was talking about. And it’s through that interdependence that you get that harmony that you want within the family as well.

Talli Sperry: That’s great. And I’m just going to add in, RS has a question that says, “How should we think about our legacy if we don’t have beneficiaries?”

Heather Winslow-Walker: I think that’s a great way to think about it. So, you need to think about what your vision is for your wealth. Often, in those situations we see philanthropy being a heavy outcome that they want. And sometimes, even if they are not involving children, they might be involving nieces and nephews, and that’s another way to do it, and legacy is just as relevant there. Even if you don’t have any beneficiaries that you’re passing on, or just to the charitable organization, being clear of what you’re looking for and looking for matches within that philanthropic world that share your values, for example, is a great way to go.

Talli Sperry: And preparing that organization for what they might get, right?

Heather Winslow-Walker: Exactly.

Talli Sperry: James, you’re really leaning in there.

James Parker: Exactly. Yes, I think that’s the biggest thing. And, you know, we also have a client who has named an organization, and his concern is will that organization be in business 20-30 years from now? So, we see that often, where they don’t have family, or maybe that they have decided as a family that they want the money to go to philanthropy.

So, making sure that, again, there’s communication and there’s a plan and there’s structure and governance in place to help make sure that is successful.

Talli Sperry: Yes, really important in the family and in the charity.

James Parker: Right, right.

Kevin Wick: And I talked before about the impact you can make in giving to your family while you’re alive. That same idea can apply to charity. So, if that’s where the bulk of, or all of your assets are going, get involved with them either in terms of dollars or in terms of your time. And you can see how they’re going to use the assets that you’re giving now or later. Get involved, have an impact while you’re here, and then you know what you’re leaving after you’re no longer here is really going to further that mission, that bigger picture goal that you have.

James Parker: You know, one of the things I think, too, as we talked about getting involved, and tips, right. So, oftentimes, family members learn best by modeling someone, seeing what someone else is doing and getting involved. So, I would encourage family members, the leaders in the family, to be involved in the philanthropy. Not just write, again, write a check, but get involved and show your children, your extended family, how important this is and the life changes that it can make.

Talli Sperry: That’s great. And then, also, setting maybe percentages that might be going to charity because sometimes people figure out their from an ultra-high-net-worth family, and we’ve seen a few kids plan lives in one direction and get surprised one way or the other, and it can be harder than we might expect.

James Parker: You know, it’s like Warren Buffett said. “I want to give my kids enough to do what they’re passionate about, but not so much that they don’t have to do anything.” So, you have to have that discussion. He made it very clear.

Kevin Wick: Keep them hungry.

James Parker: Right, keep them motivated. You want them to have vigor and want to achieve success.

Talli Sperry: Great. So, Kevin, I’m going to ask you this question from Debra who’s asking, “What are the advantages or disadvantages of having your personal assets in a revocable trust?” And maybe you can layer in the family legacy concept as you discuss that.

Kevin Wick: Yes. One of the elements of the successful transfer is the planning, and part of that is your estate planning, and the revocable trust is a key component of many people’s estate plan. So that’s going to be my sort of tie-in to our discussion here today.

Outside of that, from a more pure estate planning side of things, a revocable living trust is a way to set your financial life up, set your estate plan up, so that when you pass away, there’s a very easy transition on to the next generation, or whoever that might be. You can do so without having to involve the court system, commonly known as probate. So, assets that you hold in your revocable living trust while you’re alive will seamlessly go without the court’s involvement.

If you don’t have a revocable living trust, and not everyone will, but those are typically then governed by a last will and testament that you have in place. And more often than not, you would need a probate process in order to have that estate administered. So that involves some more time, cost, and things like that.

It can be simplified, to speak to the advantage. You can simplify your affairs, remove all of that from the court system; you keep your affairs private in doing so.

James Parker: And I think one of the things that, also, often is coupled along with whether it’s through will or avoiding probate through the revocable trust, is to have a letter of intent to accompany that because we talked about sometimes that it’s the trust or the other things that can go wrong, but more times than not, it’s the communication. But, again, having a letter of intent is a way, or a letter of instruction, if you will, to say, “This is what my intent was by doing this trust. Here’s what I wanted it to accomplish.” And so, it just provides additional context.

Heather Winslow-Walker: And that, Talli, when you talked about the tie-in to legacy, really starts to create a platform where the chaos that we talked about, or the family dynamics, becomes much smoother because the plan is in place.

And one thing, Kevin, correct me if I’m wrong, but I think what we also see sometimes is those next generations might not be starting that planning early enough themselves.

Kevin Wick: True.

Heather Winslow-Walker: And so, don’t always think of things like the revocable trust as something that your parents will do; really consider it for you as the beneficiaries, thinking about that yourself.

Kevin Wick: Because a lot of our children, a lot of families’ children are very successful, so they’re going to likely have some of the same challenges. So, if you’re prepared, then it gives you an opportunity to really make sure that you’re much more successful in receiving the additional wealth.

Talli Sperry: Yes. We tend to have to think about these things much younger than we feel we should have to think about them, right, we’re all finding at our ages.

Kevin Wick: That’s very true.

Talli Sperry: So, I love this next question, and I have to thank you, Norman and your wife, because you are clearly beginning to do legacy planning while we’re talking. A really fun one, thank you so much. So, he’s asking, “My wife and I have both funded our trust. If I predecease her, what should she do?” So maybe, James, we’ll start with you and Kevin.

James Parker: Yes. So, I think, one, have conversation, obviously, among the two of you around what should that look like when one of us pass. So, I think one of the great things is you’re a Vanguard client, so you can lean on Vanguard to really help with that. As Kevin was discussing earlier, our Personal Advisor Services can step in and support, from an investment perspective, especially if the surviving spouse is less comfortable making investment decisions. We can also step in to provide the trustee services, which I think is a lot of our families will list Vanguard, VNTC, or Personal Advisor Services as their successor trustee. So, kind of have that backstop in place that if, whoever they list as the primary trustee is not aware or available or competent to make those decisions, they can have Vanguard step in and help out.

So, I think the revocable trust is, it’s the foundation of a successful estate plan.

Kevin Wick: Yes, my first thought in answer to that was turn to your trusted advisors. And you’ve certainly got that; hopefully, you’ve got that in Vanguard; we strive to be that for all of our clients. And you’ve got a lot of resources available here to help at that time, which is, obviously, a difficult time.

But that might include a circle of people. It may be an attorney, an accountant or tax preparer. It may be other people in the family. It may be adult kids or something like that. So, most oftentimes there’ll be a small circle of trusted advisors. Lean on them in a difficult time and point you in the right direction, and Vanguard’s always here to help.

Talli Sperry: Yes. And if you’d like to know the services that are available to you, if you click on your Resource List widget, you’ll see about our Wealth Management offer and our Personal Advisor offer that we’ve been talking about. So, I think sometimes it’s helpful just to remember now what’s available to us, so when we need it, we’re aware.

So, Heather, this question is for you. And it’s from Margaret who’s asking, “How do we communicate wealth management with our son or daughter whose spouse has different values than us?” So, we hear this one all the time; Margaret, you are not alone.

Heather Winslow-Walker: Yes, that’s a good one. So, first, let me just kind of lay the foundation with the thought around in-laws; that’s a common question we get. And then I’ll get into the different values that an in-law might have.

So, the question often comes up, “Should I include my in-laws in talking about my estate planning?” And what we encourage is, as much as possible, yes, we do encourage you to include the in-laws. And what you have to be thinking about is a few things.

First of all, again, think about your long-term legacy goals and what role that in-law may play in them. Even if you don’t see them hands-on within that role, it’s very likely that you might have grandchildren and that they will be connected there. So, what role do you want them to play?

And it’s also very important to be thinking about the strengths and skills that that in-law brings and the communication styles that that in-law brings. And, often, that that can be an additional asset that the holistic family can leverage for the long-term vision of the family.

Now, to take it a little bit further, what if we have values that aren’t in alignment with in-law children? It’s appropriate to, again, during family meetings, talk about what your family values are and see if there’s any common ground. And, in all of the families that we’ve worked with, and many have included in-laws, we always are able to get to one value at least that they have in common.

Talli Sperry: Even when it’s been a bit of a rub, actually, right? Yes.

Heather Winslow-Walker: Even when it’s been a bit of a rub.

And so, what you begin to do is you build that foundation together as a family on what you have in common. What brings you together rather than what separates you. And I don’t mean that to sound trite; that can take, definitely, the communication. It can take listening; it can take understanding different perspectives. But you want to focus in on, what do I want this person to be involved in with my long-term estate or my long-term legacy? And then, what do we have in common that we can build off of?

Kevin Wick: Yes. And I just say if the goal is to get to that 10%, as we mentioned at the outset and not fall into the 90% that fail, better to do the work and put in the effort to find that common ground, even if it is just one area, than to bury it and sweep it under the rug and have it come out and scare you at some point down the road and probably cause a bigger issue than it would if you’re addressing some of those differences today.

Talli Sperry: Yes. That’s important.

James Parker: I‘d like to just point out, too, what Heather said, and that’s the listening. We talk a lot about communicating. So, communicating is also listening. So, I would encourage the leaders in the family to listen to what the other members of their family are saying, so the communication goes both ways and that they’re not just passing down their values, but these are family values.

And so, to Heather’s point, oftentimes, and we’ve seen it in many cases, where they may be at odds with each other, but they are able to find common value because they were open and had a dialogue, and they communicated, and they respected each other. I always like to say, “We should celebrate our similarities and respect our differences.” That’s what makes people successful.

Talli Sperry: I like that. Yes, I think that makes a big difference because we tend to forget, this isn’t just a tell, it’s a joining together for the future, and that’s really essential.

So, I’m going to do one of my favorite things, a little bit of a lightning round on two presubmitted questions. So, we’re going to come to Kevin and then to James and, Heather, if we have time, we’ll get to you too on one.

Heather Winslow-Walker: Okay.

Talli Sperry: So, this is from Diana from Wellesley who’s asking, “How does one structure an inheritance plan that extends to grandchildren not yet born to ensure that the children donate a portion to charity and that assets could be used by children in cases of certain emergencies rather than charity?”

Kevin Wick: So, typically, to meet that set of goals, it’s going to be some kind of trust vehicle. And it could be a trust that’s set up today and funded today. It can be a trust that’s intended to be funded later, or at death, or something like that. But you would set up that structure and those desires and goals today, even if the intended beneficiaries aren’t here yet.

And so, you can establish that for a class of beneficiaries, in this case grandchildren, and set that up exactly how she would like to meet those particular goals and objectives, mandating contributions to charity and spelling out how those assets are available over a period of time and for what purposes. But important to do, as we were talking about before, do the work today, which in that example, is putting together the trust, putting it down in black and white with the help of an attorney, and then you’ll be set for success later on.

Talli Sperry: Awesome. So, James, Sarah is asking, “As the inheritor of the wealth, what things can I do to be prepared to take over the finances and continue to grow them?”

James Parker: Sure. I’m glad to hear that she’s asking that question.

Talli Sperry: Me too.

James Parker: Because, to our point earlier, I don’t think that a lot of the beneficiaries have that question; they may not ask the question. So, I think that’s the first thing, is to ask the question.

Kevin Wick: Kudos to Sarah, yes.

James Parker: Definitely, kudos to Sarah, so a fantastic job there.

So, I think part of it is, I would go into this with an inquisitive mindset to say, “I’m not asking about, as we talked earlier, about how much money, but I want to make sure that what I’m doing and what I’m planning on my side is very much in line and will complement what my parents or what my other family members are doing, so that we can make sure that it will pass and that what I’m doing is not in conflict with what her parents are doing.” So, I think it’s, again, I would go into it with, “Help me understand so that I can make sure I’m doing the right things to complement what mom and dad or our parents are doing.”

Talli Sperry: Great. And, Heather, your lightning round question here is from Thomas, from Williamsburg, Virginia who’s asking, “If you have many beneficiaries, how can you communicate to a large number of individuals to ensure that they understand the financial responsibilities?” When you have a lot of people, what do we do?

Heather Winslow-Walker: So, you have to think about what ways can I get messages out to large groups? And so, one of the things, just to play off what James said earlier, a letter of intent, which is often a legal structure, but you can just write a general letter and begin to communicate your values and your wishes to your family. Video is a great way as well. Bringing people together for that family meeting can also help as well.

What I also heard in that question was, really, financial education. And so, really being able to offer resources that are online, for example, that you can get out to many beneficiaries. And, at Vanguard, we’re developing those resources; they’ll be coming soon with some online education tools with financial acumen and investment acumen.

Talli Sperry: All right.

James Parker: I have a family that I work with, and I think they’re at Generation Five now. And so, once a year they go to a place where they’re meeting for a week; and they make it fun, especially for the younger children, is they make it fun. And they do teach them things; there is an educational opportunity for the grandchildren and great grandchildren. But, at the end of the day, it’s still fun. But they’re getting the whole family together, and I think it’s 80 people, if I’m not mistaken they’re bringing together.

And mom and dad are funding, or grandma and grandpa are funding it, but at the end of the day, they’re bringing everyone together and they’re all hearing the same thing, but they’re making it fun. And I think that’s the key is to make it fun.

Talli Sperry: I think it’s a cadence and a natural rhythm too. I heard a client two weeks ago say that he and his wife get together every six months with their advisor and cover one sheet of paper that talks about the family legacy planning. So, there’s something about getting this in our minds, so with the broader scope and then intimately together.

James Parker: And, at some point, I would encourage that individual to begin thinking about introducing their family members into those discussions with the advisor.

Talli Sperry: That’s a great point, great point.

James Parker: So that that individual, their family members, know who that trusted advisor is, and so they know who to go to when something happens.

Talli Sperry: Very essential. All right, good.

So, I’d like to turn each of you for some final thoughts here. And maybe in this, if you could share your favorite book. We’re getting some questions about what was the book you mentioned, and can you tell us the author? So maybe, Heather, we’ll start with you because I know you have your book list right there.

Heather Winslow-Walker: I do. I have several books to recommend. I did say Entrusted by Andrew Howell and David York. Another of my favorite books is Build Your Family Bank by Emily Griffiths-Hamilton. It starts to put family legacy in the context of all the other topics you have to be thinking about with holistic wealth management planning.

For those in our audience that have younger children, Raising Financially Fit Kids by Joline Godfrey.

And then, my final book that I like, and I just finished this one, Strangers in Paradise by James Grubman. And that’s a really good one when we were talking about that fourth and fifth generation and beyond, and the kind of things that you need to be thinking about.

Talli Sperry: Great. I haven’t heard of that one, so that’s a good tip for me, too.

Heather Winslow-Walker: Yes, yes.

Talli Sperry: All right, good. Kevin, any final thoughts from you?

Kevin Wick: I would just say, you know, I’ve been doing this for a long time. In my experience, it’s worth the effort and the work. This is a concept that’s sometimes tough to wrap your arms around, but it’s worth it. And we’ve seen really, really good things happen in our clients’ families as a result of putting in

Talli Sperry: Good. And, Mr. Parker?

James Parker: Yes, thank you, Ms. Talli. You know, I think one of my favorite books, and I share with families often, and, obviously, Preparing Heirs is what I mentioned about family legacy. But if we’re trying to teach the investment acumen, I think one of the easiest reads, and it’s by our beloved founder, who we lost in January, is The Little Book of Common Sense Investing. Right, it‘s an easy read, it teaches, it espouses a lot of who we are and what we believe in as an organization. And so I think it’s a fantastic book and, obviously, a fantastic author.

I would say, too, last bit is, again, I mentioned this early on, but I think it’s important to have the communication. It needs to be authentic in both ways, but I think it really needs to start early, as soon as you can, as soon as you feel is right. And oftentimes it may be awkward to start it sooner than you think you should, but I would encourage starting it because it is very, very important.

Talli Sperry: Yes. Worth the effort, as Kevin so appropriately said.

James Parker: Yes, very much.

Talli Sperry: Good. So, we have covered a lot of ground tonight, and thank you my guests for being with us here tonight. It was so much fun to be with you here.

James Parker: Thank you.

Talli Sperry: And thank you for sharing your insights, and to members of the Vanguard community, thank you for joining us. And, if you’re new to our webcast, thanks so much for taking a chance on this.

If you feel like you missed a key point or wish you could rewind to a specific section, I know I do, don’t worry. We’ll send you an email with a link to our webcast library, where you can get a replay of tonight’s webcast and also find links to our other webcasts with transcripts included for your convenience.

And please look for our new Family Legacy resources that Heather mentioned. They are coming soon to vanguard.com.

And, if you’d be gracious enough to share just a few seconds of your time, we’d be grateful if you’d select the red Survey widget, and it’s the second from the right at the bottom of your screen. We really do value your feedback on tonight’s webcast, and we welcome your suggestions for future topics that you’d like all of us to cover.

We’re so glad you spent your evening with us, and we sincerely hope you enjoyed the program. And we would encourage you to continue the conversation with the Vanguard community on our social channels, facebook.com/vanguard and on Twitter by going to @vanguard_group.

So, on behalf of Kevin and Heather and James, thank you so much for joining us here tonight. And on behalf of all of us here at Vanguard, thank you and good night.

 

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