Why trust is the backbone of successful wealth transfer

Family finances

The recipe for successful wealth transition includes trust and communication.


By Amy Castoro, president and CEO of The Williams Group

This article is part of a series brought to you by RBC Echelon, a suite of private wealth management services for ultra-high-net-worth clients and The Williams Group, a consulting group focused on preparing families for wealth transfer.

The number one concern we hear from high-net-worth families is how to transition wealth to the next generation and maintain family harmony. At the Williams Group, that’s our sole focus; to help families avoid the unfortunate tales you have likely heard about rifts that can be created and exacerbated by wealth.

Whether it’s ownership in shared assets, roles in the family business or who should get mom’s wedding ring, the perceived risk of having these discussions can outweigh the hope of a positive outcome, so these crucial topics are inevitably pushed down the road. While estate planning and wills have long been thought of as the answer to such questions, estate plans are designed to take care of assets, not relationships.

The recipe for successful wealth transition includes trust and communication, heir preparedness and alignment of family values regarding the purpose of the wealth.

Why trust is important

The importance of trust is best illustrated through the case of the Barretts,1 a family we worked with. After building a successful business and raising four children with families of their own, the Barretts were faced with the responsibility of passing on their wealth. Fearful of derailing the next generation’s motivation and careers, they distributed $100,000 to each child, thinking that was an amount that would be enough to be helpful, but not so much as to “cause trouble.” The result? The kids were confused. While grateful for the distribution, the numbers didn’t add up. They saw a significant gap between their distribution, and the new lifestyle their parents were living. The sale price of the family business was public knowledge, their parents were having a lovely home built in Italy, flew private and dad’s car collection was becoming noteworthy. As the significance of the family’s wealth became more tangible, conversations about the wealth became more elusive. There was increasing tension in the family because of what remained unanswered: who was going to receive what, and when. It became more difficult to get the family together for holidays, calls and texts to one another went unanswered, and discord was on the rise.

While it may sound like the Barretts desperately needed to have a conversation about money, what they actually needed was a conversation about trust. The number one reason wealth transitions fail is a lack of trust and communication.2 Reluctance to talk about family wealth may eventually produce resentment, distrust and broken family relationships, which can all lead to the loss of control of assets.

What is trust and how do we manage it?

Trust is central to our identities that it can be difficult to pin down—we know it when we have it, and we feel its absence when it lacks. In the Williams Group’s work with families, we find it helpful to think about trust in terms of four domains rather than a general character assessment. This allows us to focus on the situation rather than the person. The four domains of trust are:

  1. Sincerity – does their internal story line up with their external story?
  2. Reliability – can they manage all of their commitments and come through for us?
  3. Competence – do they have the skills to do what is being asked?
  4. Care – do they really care about us?

Let’s go back to the Barretts to illustrate this idea. The Barretts have two sons, Charles and Dan. The youngest, Charles, had reached his breaking point with Dan’s poor attendance at family business meetings. Charles felt Dan was not taking his responsibilities seriously and did not care about the impact his attendance was having on everyone else in the family business. This eventually erupted in a heated argument. But through our intervention and application of the domains of trust, we were able to refocus the conversation on the reliability component of trust, so the conversation was constructive rather than attacking.

What gets in the way of trust and communication?

Talking about family money is a conversation ripe for procrastination, and this is particularly true for families that come from humble beginnings. That’s because there is a pervasive perception that talking about wealth is akin to flaunting it, which runs counter to their family values. Other reasons these conversations are avoided include fear of causing heartbreak, worries that careers or motivations may be abandoned along with family values and a sense of purpose and the risk of magnifying existing discord in family relationships.

What to do about it?

The Barretts, like most wealthy families, kept circling around the elephant in the room: who would get what, and when. The parents thought doling out $100,000 to each child would help to alleviate that question. Instead, their action amplified the distrust and created further unanswered questions.

We worked with the Barretts to establish a strong foundation of trust and communication. The first step was listening. We counseled the parents that increasing family alignment and buy-in required asking the right kinds of questions of their children. As a result, instead of imposing their own views of what the future held, the Barretts asked:

  • What do you see as the purpose of our family’s wealth?
  • How do you see yourselves contributing to the family wealth?
  • How would you like to see this wealth impact your lives and the lives of your children?
  • What roles do you see for yourselves?

Our family meeting with the Barretts invited Charles, Dan and their sisters to articulate the possibilities they saw for their futures, and the concerns they had. This was not another “lecture” from their parents; it was an opportunity to build trust and speak openly.

Legacies are built on relationships, and relationships are built on communication. Like the Barretts, investing your family’s resources, time and effort in learning to strengthen trust and communication skills will significantly increase the likelihood of ensuring a healthy and unified family for generations to come.

1 Name has been changed to protect family's privacy

2 Bridging Generations Transitioning Family Wealth and Values for a Sustainable Legacy. Williams and Castoro

RBC Wealth Management, a division of RBC Capital Markets, LLC, is not affiliated with The Williams Group. The Williams Group services are provided solely by The Williams Group, not RBC Wealth Management.

Case studies are for illustrative purposes only. They do not necessarily represent the experiences of other clients, and they do not indicate future performance. Results may vary.

RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC.

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