[Fin Talk] Every Gift Matters: Wealth Transfer to Stewardship
By Arlyn Tan
The pandemic has caused not only economic disruption, but unexpected shocks to families in the area of wealth distribution and management. COVID took the lives of many seniors and business owners, suddenly leaving family members unprepared for both the emotional stresses and financial responsibilities.
a) Puzzle of Equitable Distribution of assets
The distribution of wealth can be amicably done by family members who have good relationships. The principle of stewardship can be easily implemented despite the lack of the parent’s will or the intervention of lawyers.
In complex cases where siblings have their own interests, the will is an important starting point to know the wishes of the parents. The distribution should be easy if all assets fall in the category of cash. However, valuations and liquidity considerations are sometimes the causes of conflict. Cultural matters render equitable division impossible. In traditional Chinese Filipino families, the first son is the default heir which gets the control and greatest percentage. Female siblings are not part of the recipients of the estate.
The question now is how are these matters handled? A third-party entity may be needed to temper sibling rivalry and competing claims on the family asset. The objectivity of a family advisor or a financial advisor who serves as a project manager can implement seamlessly the recommendations of the accountants and lawyers. From a perspective of a non-family member, I would want to see the family still have good relationships after the wealth distribution.
b) Heir’s Dilemma
After the stages of grief over the loss of a loved one, the reality of facing the financial and non-financial aspects of inheritance sinks in. This is a great time for one to visit his personal financial plan and create an inventory of assets. Your plan should include the documentation of cash flow schedules, investment strategies, cash reserve target and insurance gaps. When this becomes overwhelming, it is wise to subscribe to the services of a financial advisor who specializes in family wealth management.
An individual is indeed lucky when he is an expected heir to his parents’ wealth which can range from cash, properties to businesses. It is like winning a raffle or a lotto. The apparent heir may use this source of wealth as a reason to live a more relaxed life relative to others who need to exert extra effort to pay off debts and build nest eggs or milestone funds.
On one hand, the wealth which should be seen as a blessing becomes a source of friction because of the lack of skill in portfolio management. The idea of having so much which was not the result of hard work can lead to a sense of entitlement which can limit the growth of the heirs. When one manages the assets, accountability is the key. There is a big temptation to overspend on items that were only part of the “want” list. Consider the sacrifices that were put into the creation of wealth that was passed to you.
Wealth has been synonymous to power, social symbols, influence, and opportunities. When wealth transfer is managed well, it can increase the value of this multi- generational wealth through the creation of businesses and employment. On one hand, if distribution mars family relationships and kills ambitions, then the value of the total portfolio surely decreases overtime. Investing in financial literacy and value formation of both the assignee and the heir can transform the plain wealth transfer into a more meaningful act of stewardship. When every gift including relationships matters, then finding the solutions to the wealth distribution puzzle and the heir’s dilemma would become a healthy experience for all parties involved.
Arlyn Tan is a Strategic Wealth Consultant. She helps individuals and organizations on how to maximize the value of their money through risk, health & wealth management. Her mission lies in making sure that clients achieve 3 things. First, they reach their milestones on time with sufficient resources. Second, they protect them from the impact of economic losses secondary to unexpected events. The third and most important is that they enjoy meaningful and balanced lives.
LinkedIn/Twitter: Arlyn Tan