Family Conversations About Wealth Transfer

For generations, people were brought up not to talk about money. But if you’ve accumulated wealth that you want to leave to your family, it’s essential to break through those barriers and start communicating. In this episode, Jane Scaccetti, CPA and CEO of Drucker & Scaccetti, shares crucial information about why it is so important to be good stewards of your wealth in order to ensure that the next generation does the same.

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Hello, and welcome to The Wealth Cast. I’m your host Charles Boinske. Today, I’m very pleased to welcome as my guest Jane Scaccetti. Jane is a founding shareholder and CEO of Drucker & Scaccetti in Philadelphia. Among Jane’s long list of accomplishments since she began her career as a CPA in 1977, she has served as a trustee for Temple University, Chairman of the Board of the Temple University Hospital, Chairman of the Board for the Temple University Health System. In addition, Jane has tremendous experience working with complex closely held businesses and successful entrepreneurs. On today’s call, we will discuss the important topic of starting a family conversation about wealth transfer. I hope you find this helpful.

Jane, welcome to The Wealth Cast. I’m so pleased to have you join me today to discuss an extremely important topic, which is wealth transfer from one generation to the next. As you’re well aware, there’s a statistic out there that talks about wealthy families losing their wealth—70% of their wealth by the second generation, and 90% by the third. So I just think it’s a critical topic, and thanks for joining us.

Thanks for having me. Chas. I’m really excited to be here.

You have, in the past, talked about a process that you’d like to take families through to begin the conversation about wealth transfer. And I thought it’d be helpful for the listeners for us to walk through what that process looks like, at 60,000 feet. And maybe we can talk about some of the idiosyncrasies that go into each one, or come along with each one of those steps. But I think having that process, well articulated and available to families to start the conversation, could be really helpful.

I think Chas, what we have seen—and you mentioned it before about the need to really have this to prepare your heirs—what we’ve seen is that people will be very good stewards about the wealth they’ve created, or the wealth they’ve inherited. They use trusted advisors to collaborate about taxes and investments and legal risks. They use insurance to reduce other kinds of risks. And they’re being very reflective and thoughtful. But what we all also find is that many times, Well, look, they’re just not prescient and immortal. They don’t know when something can happen to them. And what we find is that without the communication, if their errors haven’t been prepared for what the family views as wealth, and the importance to the family, problems result, right? Because they can’t hear with the voice of the, in this case, maybe the mother and the father, as to what they value and how they see the process of what they have in wealth and what that means to them. So even in close knit families, we see there’s often little communication about family wealth, or what will happen when the leaders of the family are no longer around to lead.

Sorry to interject, but it seems to me that very often, the risks of that miscommunication are greater than the other risks that families are spending their time managing—like you mentioned insurance or investment allocations, or returns or taxes. Do you find that as well?

I do. It’s almost as if they think there’s still plenty of time to do that, and part of it is, as we go through this, it’s not easy to do. It’s not easy to talk about money. And it’s certainly the generation that we’re talking about, has always been taught not to talk about money. I’m not sure the next generation shares that concern. But to open up about finances, and to talk in terms of wealth, also makes people uncomfortable, because wealth is a relative term. But if you’ve spent your life building up what you have, and you’ve done it so that you can help the next generation in whatever capacity, regardless of how many zeros are behind what comma, that’s wealth. And it’s important to have that conversation.

Those studies that you pointed out, said, you know, “What caused the problem, so that after the second generation, the wealth transfers seem to fail? What is causing those issues?” And people guess that taxes, people guess that investment—poor investment performance, they guess that poor investment allocations, but the number one reason by an overwhelming majority was lack of communication. Lack of communication within the family. So that’s what we start with, is to say, “Let’s make our goal today that we want your family to understand what you feel, believe, value, in the wealth of the family, when you are no longer here to lead.” So they can hear it in your voice.

And the process we take them to is one that we use in a lot of strategic planning, I call it “zoom out, zoom in.” And what you do is you first zoom out and say, “What’s our goal? Our goal is to educate the family to be good stewards of whatever family wealth we have built, and for them to be able to enjoy that, and pass that on when we’re no longer here.” So that’s the zoom out. That’s the goal here. And then what we try to do is say, “Okay, what is the most effective way to make that communication, something that the next generation can hear, and something that the current generation is comfortable sharing.” And for everyone, it’s slightly different.

You start big picture, and then work into the details. That first meeting, what we’re talking about today, isn’t really about details, right? It’s more about, it seems to be based on your statement, to be more about philosophy, and mission than it is about dollars and cents.

Absolutely. In fact, when you announce there’ll be a first meeting, we encourage our clients not to look at their balance sheet, not to look at their net worth statement, not to focus on their investments—we don’t want the numbers involved. What we try to do is control the expectations of the people who are coming, so that if you have—you know, I had one family, and the mother said to me, “My children think we’re multi billionaires. So we controlled some expectations. But we didn’t declare how much we were talking about in wealth.” On the other hand, you really do want to just resist outlining any kind of specific numbers.

But what you want to talk about is the family story. You want to talk about your approach to wealth. You want to talk about your family virtues that you admire, and what you envision for long term family wealth. And I’ll give you some examples: One family said, “We want to give everything to our children, but we really don’t want to establish any trust or anything that will pass on to the grandchildren.” And when questioned, their reason was, “We want our children to learn the responsibility of taking care of their children, and the responsibility of wealth transfer of being in the community and being a good family member.” Interesting! That was their value.

It seems to me that there’s almost no right answer that fits every family, right?

No.

That this has to be, this is why it’s so important, it would seem to me to start at this level. Because it’s the foundation for everything else.

It is. And unless a family stops and thinks about it, it’s very easy, if you’re no longer here, for advisors, or other people to impose a virtue or a belief that just is not fitting with this family. We had another situation where we had a family—a blended family—and then a child of this blended family. So there was about 25 years of difference between the ages of the oldest to the youngest. And I remember the comment—one of the parents said, “You don’t get credit for coming on board early.” And they wanted to try and even out the contributions that each of them would receive if anything happened to them. That was their values.

So that’s really the goal of that first meeting is to communicate about wealth. It’s to share what is important to you. But there’s a secondary reason for that first meeting: What you want to do is—and sometimes I’ve seen it, Chas, not start at this first and second meeting—is the questions from the family members start to percolate. Now they start to think about this, and they’re asking questions, and now you can see where they’re not valuing something that you maybe think. They have great questions and you weren’t going to go in that direction and now you realize they really are interested. So you really want to take that time to let that first meeting just be one where a lot of discussion takes place, and if no discussion takes place, give it time. What we have found is that subsequent to that meeting, those questions are asked, those points are raised. 

So again, it’s a process, you can’t cheat and say “We’re in good shape. Don’t worry about it.” That’s not the purpose.

Yeah, it would seem to be, that first conversation, that first meeting, keeping it broad is the key to allowing that subsequent conversation to percolate, right? If you’re too narrow about it, you’re going to close doors. And, you know, I think that that’s really sensible and good advice.

And I think, Chas, when you—if you immediately start with numbers, especially for people that tend to be more analytical—they become linear. And what you really want here is for someone to sit back and be a little bit more looking at this as from a 3D perspective, so that they can see all the possible paths, all the places this can go—instead of just one step in front of the other. And I think as soon as you put numbers on a paper, you lose that ability to step back and see a broader picture.

Yeah, that makes sense.

The second meeting doesn’t take place until the family members do a lot of preparation. And this is where the advisors—the role of your firm, the role of my firm—will come into play, because we tell the family to do your homework then. Even if you know your net worth and you’ve looked at it, this is the time for you to verify ownership of bank accounts. This is the time for you to verify ownership of real estate to make sure you really understand how it’s titled. This is the time for you to look at all your beneficiary designations of all your retirement plans.

And I can tell you, even with my most precise clients, the people who really dot I’s and cross T’s, many times they will guess at the answer, and then when we get the facts, it’s different. Because time has passed and people forget. So we really, really stress that it’s important now to go back and look at those documents and make sure you understand them and put together that list.

Yeah, the very nature of what led to the success of many of these families is complexity right?

Yes.

These are complex situations. So making sure that there’s a balance sheet that’s accurate, the beneficiaries—all makes sense to me.

Yeah. And who owns it. You know, I have so many times clients will say to me, “Wow, that’s jointly held? I didn’t know that,” or “Wait, it’s only in my name? I thought I put it”—you just don’t remember, it’s too much. And now when you’re putting together your assets, it’s really important not just to just focus on your financial assets, right? There’s a whole group of other assets you have, and I call it your “heirs”—their strengths and weaknesses. And it’s important for you to look at what they bring to the family. And when we usually do this, this is where there’s an aha moment with our families. Because usually, they’re trying to find the person who is financially or legally the “guru,” the person who, “Oh, they’ll be able to help everyone with this, they’re a wizard at that,” right? “They graduated the school with a business degree.”

And that person’s important. There’s no doubt, right? It relates very well to what we do. But there are other family members who bring various strengths and weaknesses, and some of those strengths can be the person who’s the—I call them “the keeper of the family culture.” That’s the one that plans the parties, makes sure that hurt feelings are healed, makes sure that everyone shows up. Then there’s the family member that might be the historian. They’re less interested in the dollars and the feelings, and they’re more interested in legacy and purpose. 

So it’s important to sit back so you can start to see your children coming into this meeting that you’re about to have, bringing their financial strength, so that you can even tell them you recognize this role. That helps the financially oriented person to see, “Wow, it’s important that we pay attention to culture in the family.” And the person that’s culture can understand, “Gee, I can’t get there if I don’t have the financial capabilities.” And the person that’s the historian and wants to build legacy realizes, needs the other two as well. Now, I’m assuming there’s various numbers of family members. Sometimes you can embody that in one or two of those traits in one person. But you want to look to see what they can bring to the table. It’s also the time to start talking about in-laws.

I think appreciating what each member brings to the table in terms of their skills and how they think about things is a really important—in my experience—is a really important component of making sure that subsequent steps and subsequent decisions are in harmony with each other. Without that step, without really appreciating where each person’s coming from, I think that’s where the room for misunderstanding and miscommunication in my experience

Absolutely.

It’s really, really important to make sure you’ve got that buttoned up.

This is a time when you decide how you’re going to treat and handle in-laws. If you have adult children, and they’re married, do you include those in laws as part of this process? I would say, you know, and I’m just guessing here, I would say about half of our families will include in-laws, but they don’t necessarily include them at the second meeting. They might include them at a subsequent meeting. And though I do have some that say, “You know what, there’s no such thing as in, in law in our family, once you marry into our family, you’re family, and you’re coming to the meetings.” Again, family values—it’s not something, there’s no right or wrong to this in any shape. You know, it’s just what it is.

One thing that we try to encourage with our families when we’re preparing for this second meeting—the most crucial part is this preparing for the second meeting, zooming in on what you have, what’s important, what the strengths and weaknesses are—we tell them to seek the thoughts and insights of people who know them best. Usually, the advisors know them very well, but test it with your family members, with your friends. We have found that people who know you best can sometimes give you some really good perspective on how you view wealth and what you think is important, and hey, “This is what I’ve either always admired in you,” or “You’ve got to be cautious about this.”

So I would seek someone that you know well, who knows you very well, “Hey, I’m going to be talking to our children, we are going to be talking about our children, about our wealth and what our expectations are, what our family’s about. What am I like? What do you think I should make sure I’m talking about? Any ideas?” And people give you ideas, and if they don’t, it was a waste of a question. It’s not the end.

Yeah, that makes complete sense. I think this whole process is so important, this transition from one generation to the next. And having a sort of a checklist or a thought process that you can go through is critical—this is really helpful, and I’m sure it’s helpful to the listeners.

In terms of your experience, when you see families make a mistake in this process, where would you say that’s most commonly done? Or is there a common mistake?

Yeah. When you said that, one popped into my head immediately, so I think the answer is yes. And I think it’s that they focus immediately on the numbers. They want to explain how much wealth they have, they want to explain how they see this wealth being transferred, they want to immediately explain why they picked Uncle Joe to be the trustee or Aunt Sarah to be the trustee. They want to immediately defend an executor, one child chosen as an executor.  Their own concerns bubble up. And then, again, people are linear. And if you bubble up a concern, everyone goes forward with that concern, instead of maybe stepping back and seeing it a little broader.

The second thing that I think they’re mistaken is they think that their children know all this, and I tell this story, and it was just so funny, I was talking to the next generation. And he said, “Dad called us up, he and his two sisters, said come over before the Eagles game, we want to talk to you.” So they get over there, mother and father sitting there with the two daughters and the son, and they said, “We just want to have a family meeting about our wealth.” And the kids looked at them, they said “Is everything okay? Are you okay? Is Mom okay?” “Everything’s fine, we’re fine. Just want you to know, we have a lot of money. You don’t have to worry about the children’s education. Do you have any questions?” And it was, you know, I’m abbreviating it, but it was very functional. So in their mind, they’ve communicated. And I was talking to the son, and the son said, “I don’t know what my dad expects of us. I don’t even know how he made his money.” Right? And we think they know all these stories, but they really don’t. And if you add in-laws, I guarantee you, in-laws most times don’t have the right story. They only have the story that their spouse told them.

So that’s usually where the mistakes are either jumping quickly to the numbers, or underestimating how important the story and the family values are to the process.

Yeah, it’s really interesting. Some of the most—in my experience—one of the most effective ways of doing that, and every person is different, and each of us has different skillsets. But one that I saw that was really effective was the family steward, who wrote the history of the family, and the history of why they did what they did, and how it occurred, so that they had that. They said, “We’ll get to that here. It’s all here. But let’s let’s start the conversation in a broader sense. This is what’s important to me personally. This is what I think the family legacy may be.” And having that well articulated and beautifully written, was really helpful to that family as they went to the next steps.

Yeah, that’s a great idea. And it really, it becomes sort of the basis of that mission, right? That, you know, here’s our history, here’s our mission.

The other unexpected benefit that I have found is how many times the—I’m again using first generation, parents, stewards—I think stewards is a better word, thank you for that—of the wealth, will be reflective, and think they know what they want this wealth to do in the future, right? Community, family, how do they see the business, right? If there’s an active business. How did they see that all developing.

I am surprised at how many times the children will help redirect and redefine what that vision is. And they wouldn’t have known, unless they asked the questions and brought them in under the tent to see what’s happening in the business. And I’ve had parents later say to me, “Wow, I didn’t know my child was so insightful and so bright,” right? “Because we changed their diapers, we had to punish them when they, you know, took the car when they weren’t supposed to.” We remember all those things that children do, that makes us question their judgments, but they grow up, and they’re contributors back to the family. That has been a surprise to my family members to see that. And I would say most times, there’s at least one child who surprises them.

Yeah, when you go through the process of sort of addressing the elephant in the room, which is sometimes, these you know, families know there’s wealth, but the elephant in the room is this transition, right? Addressing it in the manner that you described, has to make the process easier, make the likelihood of success and transitioning, and maintaining the legacy of the family more probable, more, you know, highly probable, successful. And so I think this is really, really helpful.

Jane, before we close, is there is there any closing thought that you’d like to make sure we don’t miss?

The only thing that I would say is that any family that’s looking to embark on this, that has included their advisors, and have the people that have been around them to do this, I encourage them to also make sure their next generation has met those people. Because if anything happens, again, you want to make sure that people are comfortable with the advisors that have worked with you. The grown ups will make their own decision sometime in the future if they want to retain or not retain, whatever. I’m not talking about that. I’m just talking that sometimes people don’t really understand what happens if their voice can no longer be heard. And I think it’s really important that there are other voices that have been in that room, that can be there for those children while you’re going through this process.

That’s great advice.

Well, Jane, thank you so much for taking time out of your busy schedule to chat with me today about this important subject. I’m sure we’ll be doing this again on other topics in the future. But thank you so much. I wish you well,

I do too. Stay safe. Bye bye.

Thank you for joining us today. And thank you so much to our guest Jane Scaccetti for sharing her important perspectives on starting a family conversation about wealth transfer.

About Jane

Jane Scaccetti, CPA, is a founding shareholder and CEO of Drucker & Scaccetti. She is responsible for strategic initiatives, business development and professional career development in addition to servicing complex family-owned and closely held businesses. Jane has proven expertise in retail, real estate, distribution and health care and sophisticated wealth planning techniques and board governance. She is active in civic and community service and has numerous awards and accolades to her credit.