The holidays are here. White stuff on the ground replaces white space on the calendar. Families are making plans for merges at the dinner table while kiddos hope not to be banished to the kids table. You find yourself hoping that this year’s Christmas dinner won’t result in airing of grievances nor feats of strength… but there are a few conversations you need to get out in the open. How can you max perform your family holidays? Of course, by finding ways to have difficult conversations!
It didn’t take the great political divide our country has been experiencing over the past few decades to highlight that there are some topics that will chill even the warmest family reunion. Politics, religion, sex, and money are the great American taboos. Dave Ramsey jokes that most of us grow up not hearing about sex and money from our parents, leading us to believe they had neither despite our presence indicating that they had at least some of both.
My apologies for any imagery you didn’t want just want popping into your head, but now let’s target one of those taboos: money—or more specifically anything related to financial planning.
We can choose to avoid financial planning topics with family. But if there’s bad news in this domain, you know it’s not likely to age well.
I won’t suggest you spend your holiday get-togethers looking for opportunities to address problematic cash flow, insurance, tax, investment, estate, education, asset protection, or retirement income planning with your parents and siblings. But if you know or suspect there could be something suboptimal festering, and you want to figure out where to waste your breath target your effort, consider the following issues and how you might break the ice to help your family.
Who: Anyone over 18, but especially parents and grandparents
Why: If having one’s affairs in order, legally speaking, is a way to say, “I love you family, and I want my passing to be as pain-free for you as possible” then dying without at least a Will is way to say, “(insert favorite expletive)-you! Enjoy sorting out this rat’s nest!” Or, “Death scares me and I think that if I have a Will, I’ll die sooner… so you’ll have to live with the effects of my superstition.”
Having estate documents in order also helps bring peace of mind and can avoid leaving a tip for your local court system or potentially even the IRS.
What to say to break the ice:
“We just updated (or reviewed) our Wills last month, have you had a chance to do that lately?”
“We sent copies of our Wills to our executor and guardians. We’d like to you have a copy too. Have you shared yours with the key people that will help carry out your wishes?”
“We just had a good talk with the kids about what’s in our Will. They really seemed to appreciate knowing about it. It was a lot less scary than we thought.”
“Did I tell you about that couple at church that passed away recently? No? It was so sad. Apparently, they didn’t have a will. There’s a court battle brewing and the money they set aside for college is tied up. It doesn’t look like their accounts will be out of probate in time to pay for the next semester.”
“Did I tell you about the couple at work that passed away recently? No? It was so sad. Their youngest has a severe disability. They were thinking about a Special Needs Trust, but never got around to it. Apparently, the child will be disqualified from a lot of social services because they didn’t have a plan for her care.”
You get the picture. No need for a frontal assault. Most financial topics are loaded with potential for shame and embarrassment. Talking about your experience, or a 3rd party’s experience allows your family member the chance to appreciate a problematic situation without necessarily feeling accused of committing the same misstep.
I’m a believer that “more is caught than taught.” So breaking ice with modeling versus preaching can be a very helpful tactic.
Who: Anyone that has people relying on them for economic value.
Why: The purpose of life insurance is to indemnify (fancy word for: make whole again) against true catastrophes. Generally, life insurance is most critical before a family has had the chance to build a nest egg for the golden years.
Young families usually need (term) life insurance on the breadwinner(s). Stay-at-home parents bring enormous economic value to a household, even if they don’t earn an income.
Older couples may still need some life insurance, assuming it’s affordable, if the nest egg is more sparrow than ostrich.
What to say to break the ice:
“Did I tell you about so-and-so? Her husband died and only had SGLI. They had talked about trying to cover a paid-off home, college, and some grieving and adaptation money with insurance. The SGLI will barely cover one of those.”
“Our financial planner recommended that we carry some additional term life insurance on both of us until junior’s college is paid for, I was surprised at how inexpensive it is.”
“We just got quotes on some additional term life insurance. We realized that inflation means we didn’t really have enough to cover our assumptions.”
“Did I tell you about so-and-so? His wife thought they were still paying for life insurance. Apparently, he let it lapse because he closed the account it was being drafted from.”
“I’m shocked at how easy it is to get term life insurance these days. There are lots of companies that don’t even require a medical exam.”
Don’t get me wrong. I’m not suggesting that you debut as the family insurance salesmen. In some families, you’ll get voted off the island right-quick for that. Life insurance isn’t just a thing slimy salesmen peddle. It’s a crucial way to secure a family’s future against the worst catastrophe.
If you think your family might have gaps in their armor, it may be worth raising this delicate topic.
Who: Anyone that would like to grow their ability to live a fulfilling life and achieve goals
Why: It’s been said that Taxes are Fact and Investing is Opinion. To a great extent, that’s true. But investing is the act of putting money to use by purchasing productive assets that are expected to grow and return cash flow. Most of us need investments to pay for our lifestyle after we stop working.
CDs, High Yield Savings Accounts, and Money Market Accounts are not really investing. Speculating on assets that rely upon the greater fool theory is not investing. Hoping that Social Security will pay the bills in retirement is definitely not investing.
Unless a family already has all of the income it will need through its life expectancy, some level of investing in stocks, bonds, or real estate is probably going to be necessary to sustain the family’s spending.
What to say to break the Ice:
“We met with our financial planner for our annual investment update. She simplified the mess we had made and showed us where we were overpaying for underperformance.”
“Our financial planner has helped demystify investing. I used to feel like it was some sort of rigged game.”
“Hey mom (dad), can I turn off that cable “money news” show? That bloviator is nothing but a financial pornographer. He’s successfully predicted thousands of the last zero financial calamities. He just gets people riled up and running around like Chicken Little.” (Okay, don’t use this one, but you can think it and find a way to change the channel!)
“Have you ever looked at what you pay to invest? I was shocked that, what I thought was a military-friendly brokerage, was charging us commissions to buy shares of mutual funds that have a 5.58% sales charge and an ongoing management fee. It was no wonder we always lagged the market.”
The goal here is to air the reality that, if you’re old enough to have money, then you’ve made mistakes with money. Once we admit that, we can get onto more forward-looking viewpoints like: The best time to plant a tree was 20 years ago. The second-best time is today.
Who: Families that will have higher education costs.
Why: It’s great when relatives other than parents want to contribute to kids’ college funding, but it can create unpleasant family dynamics when there’s extra middlemen in the equation. If grandparent-owned college 529 plans exist, they factor differently into the family’s financial aid equation, and reduce potential financial aid more than parent-owned 529 plans.
What’s more, it’s not uncommon for relatives to hold promised college funds in order to inject opinion into the student’s schooling.
What to say to break the ice:
“Did I tell you about the Doe family? They found out that 529 ownership can be transferred without causing a taxable event.” (Not all plans allow this, so the plan may have to be transferred to another state first.)
“I meant to mention this to you, but our friends were told by their university that little Johnny will receive less financial aid next year because his grandparent’s 529 plan funds count more than the parent’s 529 funds, had you heard about that?”
“Mom, remember when you and Dad said you wanted to help with the kids’ college? We’re getting ready to fill out the FAFSA (Free Application for Federal Student Aid) and CSS Profile (College Scholarship Service). To avoid limiting our eligibility, could we talk about what you and Dad had in mind?”
“Did I tell you about what Jane and John’s financial planner told them? Apparently, they thought they had already gifted the maximum amount to a 529 plan for the year, but their advisor said that it’s possible to front-load five years’ worth of gifting to a 529 plan.”
“Did I tell you about what Jane and John’s financial planner told them? Apparently, relatives (actually anyone) can pay tuition bills directly to the college and it doesn’t count as an annual gift for tax purposes.”
Family scripts and narratives around money and gifting can make this topic especially fraught. Few of us like to ask parents for money, or their plans about money, or to stop holding money over our heads. The reality is that the college funding creates great opportunities to reduce taxation or potentially over-pay Aunt IRS and the college.
There’s no single best formula for funding college. Grandparents may have legitimate reasons for holding 529 funds until they’re sure the use aligns with their values. UTMA accounts create flexibility, but ultimately have to be transferred to the child at the age of majority.
However, parents and students need some certainty to plan funding for a five to six-digit expense. It’s crucial to have the conversations in the family that will pull the funding plan together, no matter what family friction might ensue.
Cleared to Rejoin
Financial topics won’t make the top 10 list of fun things to discuss over slices of turkey, ham, or roast beast. But families are supposed to love and support their members, so shying away from tough topics isn’t going to create optimum outcomes either.
The ice-breaker lines in this article aren’t meant to be a bunch of passive-aggressive arrows in your quiver. Rather, they’re ways to mention key factors that should weigh on financial decision making. Most of us respond better to stories about others than accusations about our own choices. Keep these ideas in mind as you’re heading over the river and through the woods this Festivus season!
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“Winged Wealth Management and Financial Planning LLC (“WWMFP”) is a registered investment advisor offering advisory services in the States of Florida and Texas and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. The presence of this website on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by WWMFP in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or pursuant an applicable state exemption. All written content on this site is for information purposes only. Opinions expressed herein are solely those of WWMFP, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.