MONEY Estate Planning

The Hardest Part of Making a Will: Telling Your Kids What’s in It

Kids taking cookies from plate
Gene Chutka—Getty Images

An awkward part of estate planning is telling your kids how much — or how little — they'll get. Here's how a financial planner can help.

For clients, one of the most stressful aspects of estate planning — already an emotionally difficult process — is the prospect of telling heirs what they plan to do with their assets. Because conversations about legacy plans can be terribly difficult, clients may avoid them at all costs — and the costs can indeed be substantial.

Financial planners, however, can help clients overcome the challenges of having these important conversations. Here are a few suggestions for how to do it:

  1. Encourage clients to communicate their values about money in a larger context. Often, clients’ estate plans reflect lifelong values such as a commitment to charitable giving or a wish to provide first for their families. If children are familiar with their parents’ values, chances are they will have a good idea of what to expect from their estates.
  1. Help clients evaluate their children’s money skills. Just because kids grew up in the same family doesn’t mean they will have the same knowledge and attitudes about money. Especially if children will inherit significant amounts, conversations about estate planning can become part of larger conversations designed to help teach them how to manage and become comfortable with their legacies.
  1. If a client’s estate plan does not treat children “equally,” for whatever reasons, it’s best to share that information well in advance and to communicate it privately to each child. There are many reasons why treating children differently in an estate plan can be the fairest thing to do, but that doesn’t mean it’s a wise to let them learn the specifics when a will is read. If parents and individual children can discuss these provisions and the reasons for them ahead of time, there is less likelihood of conflict between siblings after the parents are gone.
  1. Encourage clients not to allow children to assume they are inheriting more than is the case. Not telling them may avoid conflict now, but it will sow seeds for deeper conflict and resentment after your client’s death.
  1. Help clients prepare children for large or unexpected inheritances. I’ve worked with heirs who were stunned to receive legacies much larger than their parents’ lifestyles had led them to expect. If clients have a substantial net worth that’s under the radar — perhaps in the form of land or business ownership — their children may be totally unprepared for what they will inherit. Planners can suggest ways to help the heirs learn more about both the financial and the emotional aspects of managing inherited wealth. They may also encourage parents to consider options, such as giving more to the children during their lifetime, that might reduce the impact of a sudden inheritance.
  1. Acknowledge clients’ fears, even indirectly. Although it is seldom expressed, perhaps the strongest reason for not discussing estate plans with family members is fear. Parents may be afraid that children will be angry or disappointed, will build too much on their expectations for an inheritance, or will be resentful of other heirs.

Talking to family members about estate planning and legacies can be difficult and even painful. Those discussions, however, will almost certainly be less painful in the long run than the stories children may make up after parents are gone about why they made the choices they did.

Financial planners can play an important role, not by taking on the task of telling heirs what parents want them to know, but by facilitating the family conversations. In especially difficult circumstances, the help of a financial therapist can be invaluable. Supporting clients as they discuss their wishes with family members can be an important estate planning service that enhances the legacy parents want to pass on to their children.

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Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the president of the Financial Therapy Association.

MONEY financial advisers

How to Be Nosy About Your Financial Adviser’s Finances

magnifying glass looking at new $100 bills
LM Otero—AP

You probably want to know how rich your financial adviser is. Here are some better ways to pry about his or her money.

What’s your net worth?

We financial professionals think nothing of asking clients this question. If the tables were turned, though, and clients or prospective clients asked the same question of us, how would we respond?

Every now and then this issue comes up in conversations among financial planners. Some advisers think their net worth is none of their clients’ business, any more than doctors’ cholesterol levels are any business of their patients.

Others are concerned that a single number like net worth is incomplete information and can even be misleading. Knowing a financial professional has a net worth of, say, $5 million doesn’t necessarily mean the person is a trustworthy or capable financial planner. Net worth tells prospective clients nothing about where the money came from. The planner may have inherited it, won the lottery, made it through a business other than financial planning, earned it from commissions on poor investments, or even obtained it illegally.

Nor does net worth reveal anything useful about someone’s understanding of money or knowledge of financial planning. I’ve worked with plenty of multi-millionaires who were horrible money managers and inept at investing. There are also many brilliant young planners who haven’t had the time to accumulate a large net worth.

I suspect that most clients who want to know about their planners’ net worth actually have several deeper questions in mind. Some may be asking if the professional actually follows his or her own advice. Imagine how troubling it might be to find out your financial planner doesn’t have a retirement plan, is a habitual over-spender, or hasn’t gotten around to making a will.

Another reason for the question may be a concern whether the planner is financially stable and will be around in the future. During the Great Recession, many financial professionals saw their revenues fall by 30% to 40%. Some who did not have a business emergency reserve had to resort to laying off staff, cutting services, or in some cases closing their doors.

Still another concern may be whether the planner is familiar with a potential client’s particular financial issues. This is especially true of high-net-worth clients. They need to know a planner can relate to the complexities, responsibilities, and emotional challenges of managing wealth.

All of these are legitimate concerns. Knowing a financial planner’s net worth, however, doesn’t address those concerns. It would be more useful for clients to get answers to questions like the following:

  • Do you follow the same advice you give clients? Give me some examples.
  • Do you have six months’ living expenses in an emergency account?
  • Do you invest your money in the same manner you will invest mine?
  • If I were to run a credit report on you, what would it tell me?
  • What are some of the things you have learned from your financial mistakes?
  • Tell me what your company has in place for emergency planning and succession planning.
  • Tell me why you can relate to someone with my net worth and the issues I am facing.

Very few prospective clients are likely to ask questions like these. That doesn’t mean they don’t want to know the answers.

Planners who want to provide exceptional service to their clients might consider providing such answers freely and transparently, without waiting to be asked. We expect clients to trust us with their financial information. One way to build that trust may be to share some information of our own.

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Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the president of the Financial Therapy Association.

MONEY Aging

As You Age, You Need to Protect Your Money — From Yourself

Piggy Bank Locked Up
Andy Roberts—Getty Images

A financial planner explains why he couldn't stop his client from making irrational decisions.

After three decades as a financial planner, I’m seeing more and more clients reach, not just retirement, but their final years. An issue that becomes especially important at this stage of life is how to help clients protect their financial resources from an unexpected threat — themselves.

One of my saddest professional experiences came several years ago when one of my long-time clients, a woman in her late 80s with no family and few close friends, abruptly fired me. Because Mary had no one else, I had helped her in many ways beyond the usual client/planner relationship and even reluctantly agreed to serve as her trustee and power of attorney in case she became incapacitated.

At what proved to be our final quarterly review meeting, Mary initially seemed confused. I was able to reassure her about the stability of her finances, and she seemed clearer by the time we finished. Three weeks later, I received a handwritten letter from her: “You have my finances in a mess. I can’t get to my money. You are fired.”

I was stunned. Yet ethically I was required to comply with her wishes by moving her holdings to another broker.

Several subsequent conversations demonstrated that Mary was suffering from periodic memory loss and delusion. Had she been disabled by a sudden accident or a stroke, I could have stepped in. Yet, because her decision to fire me was made at a time when she was arguably still competent, my hands were tied.

In theory, I could have gone to court with my power of attorney or in my position as trustee and petitioned to have Mary declared incompetent. But that posed a problem: Essentially, I would have been telling a judge, “Mary fired me as her adviser. I’d like to have her declared incompetent so I can re-hire myself as her adviser.” There was no way I was going to ask a judge to do that. I had a clear conflict of interest.

Since this experience, I have confirmed the wisdom, given the potential for conflict of interest, of never serving as a trustee or power of attorney for a client. With the help of suggestions from several other planners, I’ve also learned some strategies to help protect clients from themselves.

One tool is to ask clients to sign a statement authorizing a planner concerned about possible irrational behavior to contact someone, such as a family member or physician, designated by the client. While this would not prevent a client from firing an adviser, it would provide a method of discussing the issue and also involve another person in the decision.

Another possibility is to put clients’ assets into either an irrevocable living trust or a Domestic Asset Protection Trust (in states that allow them) and naming someone other than the client or the planner as trustee. While the client, as the beneficiary, would have the power to fire the trustee, concern about a trustee being fired irrationally could be mitigated to some degree by having a corporate trustee. In addition, with a DAPT, the beneficiary client would not have the power to amend the trust without the agreement of the trustee. This would give some protection against self-destructive choices by a client who was gradually losing competency. One disadvantage of this approach is cost, so it isn’t an option for everyone.

Perhaps the most important strategy is to work with clients to create a contingency plan in the event of mental decline. It could include arrangements to consult with family members or other professionals such as physicians, social workers, and counselors. For clients without close family members, the plan might authorize the financial adviser to call for an evaluation, by professionals chosen in advance by the client, if the client’s behavior appeared irrational. This team approach might alleviate clients’ fears about being judged incompetent by the person managing their assets.

The possibility of mental decline is something no one wants to consider. Yet it’s as essential a financial planning concern as making a will. Helping clients build financial resources for old age includes helping them create safety nets to protect those resources from themselves.

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Rick Kahler is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the president of the Financial Therapy Association.

MONEY Shopping

Seriously, Here’s How You Know If You’re Addicted to Shopping

Woman with shopping bags
Peter Cade—Getty Images

For those who shop to relieve stress, "retail therapy" is no joke.

“It’s not just shopping, it’s retail therapy.”

As a bumper sticker or a joke between friends, this may be amusing. For those who shop to relieve stress, it’s not nearly so funny. Medicating or soothing painful feelings with money is no healthier a behavior than medicating with alcohol or food. When stressed or in difficult circumstances, some people drink, some people eat, and some people shop.

As a financial adviser, I’ve worked with several clients with extreme forms of this behavior, who described their spending clearly as an addiction. It gave them a physical “high” similar to that experienced by an alcoholic or drug addict. Like other addictions, it had destructive consequences, such as overwhelming debt, loss of life savings, ruined relationships, and even theft from family members or employers.

Using spending as a medicator does not always show up in such dramatic ways, however. Even people who seem to live moderately and manage money responsibly can be “therapy shoppers” who spend in order to make themselves feel better.

When I met Alexandra, for example, she was single, in her 40s, with a well-paying job and a substantial net worth. She was investing part of her income, was current on all her financial obligations, and had only a modest amount of debt. She was certainly not spending beyond her means or jeopardizing her future security. She didn’t appear to be in any financial difficulty.

When we looked at her budget, however, Alexandra was clearly uncomfortable with some of her spending habits. Instead of simply reassuring her that she was managing her money well and not overspending, I explored this issue with her. Eventually I brought up the possibility that she might be medicating her difficult emotions with spending. It was an “aha!” moment for her. She told me, “I’ve been doing that for years.”

Alexandra’s problem wasn’t the amount she spent. It was the reasons behind her spending. If she had a stressful day at work, she would go to the mall, in much the same way another person might stop at a bar for a couple of drinks on the way home. Shopping, finding bargains, and buying herself gifts were unthinking actions she used to soothe herself when she was upset.

She never stopped to ask herself whether she needed or even wanted the things she bought. She didn’t spend more than she could afford, but she was spending time as well as money unproductively. She was also cluttering her house and her life with clothes she didn’t wear, knickknacks she didn’t care about, and gadgets she didn’t use.

Once she realized the emotional reason for her shopping, Alexandra was able to find more constructive ways to deal with stress. She learned healthier responses to difficult days. Talking with a friend, writing in her journal, meditating, or taking a walk could serve the same purpose as a trip to the mall.

For Alexandra, simply recognizing that she was using shopping to soothe her emotions was enough to help her change. People with more deeply ingrained behavior might find change more difficult. In such cases, clients could benefit greatly from working with a financial therapist with the expertise to help them look at the emotions underlying their spending patterns.

The important point for a financial planner is to look beyond the numbers. The main issue isn’t whether a client’s “retail therapy” is affordable or whether it is causing serious financial difficulties. If a behavior is creating discomfort for clients, as it was for Alexandra, helping them explore what lies behind it can be a valuable service.

MONEY Financial Planning

Serving a Client, Even After His Death

What's true financial planning? Helping someone achieve his hopes and dreams, even if he's no longer alive.

Ron was in his 70s when he first came in to ask about engaging my services. He said, “My wife is upset. She’s lost faith in my ability to run our finances.”

He handed me the latest statement of his retirement portfolio. I had a pretty good idea of what I was about to read. It was October 2002. The stock market was at a low after the Internet bubble. Portfolios I was seeing from potential clients were down as much as 80%, especially those with heavy investments in technology and dot-com startups.

To make matters worse, many of those with large losses had panicked and jumped out of the market, basically locking in their losses for a lifetime. I feared that was the case here, but I was wrong. Ron had actually done well. He had a broad diversification of small to large companies, with a nice smattering of international stocks.

I told him, “Ron, you have done a great job of managing this portfolio. We can certainly lower the volatility by broadening the assets, but I couldn’t have done better on the equity portion.”

Ron looked at me in disbelief. “Really?” And then he began to cry. No one had ever affirmed his investing skills before.

Ron and his wife Ruth did become clients. Ron was relieved to turn over responsibility for their investments. Over the years, I helped them with their estate planning, helped them shop for insurance, and made sure that they had enough cash flow to live comfortably. In one memorable meeting, we discussed their ability to continue to live independently; that conversation resulted in their decision to move to an assisted-living center.

When I met with Ron and Ruth in the summer of 2008, the economy had once again started turning downward. At that time, stocks were down about 15%. Because Ron and Ruth’s portfolio was broadly diversified, it was doing better than that.

Ron, now in his 80s, mentioned that a recurring kidney infection was zapping his strength. When Ruth left the room briefly, he told me, “I don’t think I’m going to make it through this sickness. I want you to take good care of my wife.”

I was a bit taken aback by this. Still, I assured him that if he were to die I would certainly take good care of Ruth.

A month later, Ruth called to tell me Ron had passed away. He had recovered from the kidney infection, but had died from a sudden heart attack. I was shocked, and I immediately recalled his prediction in our last conversation.

Ruth and I continued working together. Every time we met, it seemed that Ron was present. As her portfolio recovered from the crash of 2008-2009, I would often say, “Ron would be pleased.” I felt a special sense of mission and a deep satisfaction that I was upholding my promise to him.

A few months ago, at age 92, Ruth was diagnosed with Alzheimer’s. Her children moved her to an appropriate facility, and I never saw her again.

Recently, Ruth died. Her children asked me to liquidate her account and distribute the proceeds in accordance with her will. I did so with some sadness. My role in Ron and Ruth’s life was over.

I recently told this story to a friend, who said, “You’ve just described real financial planning.”

Indeed. Financial planning is about far more than asset allocation, investment returns, and estate planning. It’s about being the torch holder for clients’ hopes, dreams, and well-being. It’s about a relationship that can even extend beyond a client’s lifetime.

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Rick Kahler is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the president of the Financial Therapy Association.

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