THE M WORD: The Money Talk every Family Needs to have about Wealth and their Financial Future

THE M WORD: The Money Talk every Family Needs to have about Wealth and their Financial Future

by Lori Sackler

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Product Details

ISBN-13: 9780071799836
Publisher: McGraw-Hill Professional Publishing
Publication date: 03/15/2013
Edition description: List
Pages: 256
Product dimensions: 6.10(w) x 9.10(h) x 1.10(d)

About the Author

LORI R. SACKLER is a financial advisor and Senior Vice President at Morgan Stanley Wealth Management, where she leads the Sackler Group. Her team is dedicated to successfully guiding individuals and families through life’s transitions. Sackler is a Certified Financial Planner, Certified Investment Management Analyst, and nonpracticing Certified Public Accountant. She is also the creator and former host of the radio show The M Word on WOR in New York City.


TODDI GUTNER is a veteran business journalist who has worked for Forbes, BusinessWeek, and the Wall Street Journal.

Read an Excerpt

The M Word

The MONEY TALK Every Family Needs to Have About Wealth and Their Financial Future


By LORI SACKLER, TODDI GUTNER

The McGraw-Hill Companies, Inc.

Copyright © 2013 Lori Sackler
All rights reserved.
ISBN: 978-0-07-179984-3


Excerpt

CHAPTER 1

The Money Talk

Why It Is So Hard to Talk About Money and Why It Is So Important

We confess everything else in our society—sex, crime, illness. But no one wants to reveal what they earn or how they got it. —Barbara Ehrenreich


Joe Stanford did not see it coming.

A successful and passionate litigator whose ramrod-straight 5-foot, 8-inch frame and steely blue eyes belied his almost 80 years, Joe was convinced that he would die before his wife, Beth. They met just after World War II at a community dance in Brooklyn, New York. When Joe saw the petite, raven-haired Beth, it was love at first sight. That was the beginning of a love affair that lasted more than 50 years. They married while Joe was in law school and started their family as soon as he graduated. Beth and Joe had four children in eight years, two boys and two girls, and raised them in an affluent New Jersey suburb. The family was the center of their life together. In 2004, Beth died suddenly of a heart attack at age 76. She left all her assets to Joe. Struggling to cope on his own, lost without Beth, and battling a slow-growing lung cancer, Joe passed away two years later, just after he turned 80.

Joe and Beth's four children were not on good terms with one another. The two boys had been close as children, but once the older of the two departed for college, they did not see each other much. Over the years, sibling rivalry and their parents' tendency to favor one child over the others at various times interfered with the children's ability to maintain close ties. Not coincidentally, they settled in different parts of the country: Atlanta, Chicago, Tucson, and another New Jersey suburb.

To add to the family tensions, Joe was a disciplinarian who did not communicate well with his kids. Beth, a housewife who deferred to her beloved spouse regardless of the issue, was reserved and unable to counteract or compensate for the cumulative effect of Joe's strictness and detachment, which had created years of ill will between parents and children.

The eldest child, Mitchell, had not spoken to either parent for years. He had been rebellious as a child, and his relationship with his parents had never fully healed. Joe and Beth both deliberately left Mitchell out of their wills.

In addition, Joe's will made provisions for the inheritance of the next oldest child, Carol, to skip her and go directly to her three children, on whom Joe doted. Both Mitchell and Carol were enraged about the "unfair treatment" of the different siblings, and their anger became a source of major family conflict. Mitchell and Carol contested Joe and Beth's estates. The matter ended up being in the courts for years, with the result that the assets were depleted by more than a third because of legal fees, the changing of the guard in attorneys and trustees, and the lack of preparedness and investment knowledge of the adult children.

Worse than the financial results were the emotional damages. The four adult siblings still do not speak to one another. As a result of the complex alliances and animosities, the extended family's set of nine cousins, who were friends and saw one another regularly when they were growing up, now have little to do with one another. The family bonds were torn by the inequality of the distributions, by the silent anger that lay behind the unequal treatment, and by the family's collective inability to communicate effectively with one another.

Let's look at another situation with a much happier ending.

Sherry, a curvaceous and bubbly 5-foot-4-inch blonde, came from a midwestern farm family. While in college on the West Coast, she met and married Mike, a stocky, easygoing football player whose family had cofounded and taken public a major manufacturing business in California. After graduating, they remained in northern California. Mike went to work for the company, and Sherry stayed home to raise their three children. Tragically, Sherry died at the age of 49 after a brief battle with ovarian cancer. She left her estate in equal shares to Mike and their three children, Hannah, Samantha, and Will.

Mike eventually remarried a wonderful woman, Frances, who had been the office manager for Sherry's oncologist and became a family friend. Frances was respectful of her stepchildren, and they grew to adore her. That added to the tragedy when Frances's life was cut short by breast cancer after 15 years of marriage, leaving Mike a widower for the second time.

Over the years, Mike served as a superlative model for his children in terms of communicating about and using money. He was charitable and fair-minded, devoted to his church and to the employees of his family's company. All too familiar with mortality, Mike took steps to prepare his children to ultimately inherit his estate. He held regular annual meetings in which he was very clear with his children, both collectively and individually, about the composition of his estate. At first the kids laughed at how seriously Mike took these family board meetings, but over time they grew to appreciate them. Mike made sure that the children also knew all of his financial, business, and legal advisors, as well as the officers at the institutions where the family wealth was invested and managed. His children all grew up to become productive, hardworking, and community leaders. He set up educational trusts for his six grandchildren, to which he regularly made gifts, and he created a charitable lead trust before his death. He encouraged positive and open communication among his children about the family wealth. After Frances's death, Mike obtained approval from Samantha and Hannah to appoint their brother Will, an accountant who was the most knowledgeable about finances, to be the coexecutor along with the bank.

Mike passed away at the age of 84. His estate was successfully probated with no family or legal interference. He had assembled an exceptionally talented team of professionals to help with the process: an estate lawyer, an accountant, a banker, and a financial advisor. The executors submitted the will to the probate court in a timely fashion, the estate taxes and fees were paid, and the assets were distributed a year later as Mike had planned.

Not coincidentally, Samantha, Hannah, and Will continue to communicate with one another about issues that arise between them and within their families. They also handle their financial affairs with intelligence and forethought, and even act as trustees and guardians for one another with respect to their own estate plans. They have been able to continue the same pattern of open communication and sound financial decision making that their parents had established.

What are the lessons from these two stories? Smooth family transfers of wealth aren't automatic, but they can take place. Unfortunately, they're quite rare.

There is a 70 percent failure rate in transferring wealth, that is, a loss of control of assets through mismanagement, poor investments, or the like, according to Roy Williams and Vic Preisser, authors of Preparing Heirs: Five Steps to Successful Transition of Family Wealth and Values and earlier studies by the Massachusetts Institute of Technology and The Economist. Williams and Preisser cite three reasons for the failure of these wealth transfers:

• Tax considerations, legal issues, and the absence of planning account for 15 percent of failed transfers.

• Inadequately prepared heirs account for 25 percent of failed transfers.

• Breakdowns in communication and trust within family units account for 60 percent of failed transfers.


What struck me when I first read these three reasons was that the first two could be mitigated or solved by addressing the third. Breakdowns in communication and trust are clearly at the heart of these failed transfers and the resulting losses.

Most families find the following phrases all too familiar: "I'd rather not talk about it"; "That isn't something we discuss"; or "We'll set up a time to chat about it later." Or they may simply refuse to respond to any requests for conversation and change the subject.

The "it" in these phrases is, of course, money. In far too many families, money is a dirty word, a taboo subject—the M Word. Talking about it can be disturbing and can cause enormous anxiety and conflict. Regardless of the amount or the source of the family's money, the number or the age of family members, or the family's economic or social status, it is difficult for most families to talk about money.

It is no surprise that most families often react to major life events—a birth, illness, death, or divorce—by making quick financial decisions at the time of these important transitions, rather than proactively and carefully evaluating all their options before the events take place. The same questions, regardless of the event, always arise: "Who is in charge?" "Whom can I talk to?" "Whom can I trust?"

I have found that the lack of trust and honesty about money in a relationship can often mirror a lack of honesty about other issues as well and can signal the presence of fear of discussing the subject.

Spouses often aren't honest with each other about how much the new spring clothing, summer vacation abroad, or recent piece of electronic equipment cost, or about their true financial health before and during marriage.

Elderly parents often refuse to discuss the issue of inheritance or their deteriorating health with their grown children. Who wants to think about death or loss of control? Parents who aren't elderly are worried about job security, business uncertainty, or changes in financial circumstances, and they keep quiet about their finances so as not to alert their kids, whether adolescents or adults.

Siblings often become estranged because of the terms of their parents' wills or their lack of a will, over the disparity in the economic distributions thus far, or over unequal burdens of taking care of mom or dad's daily living and financial needs, whether because of geography or because of competence.

All of these life events and the conflicts that ensue demonstrate that money is a difficult topic. In my experience, that's true of less dramatic events as well: the state of your personal finances; the status of the collective finances of family members in combined family situations, investment strategies, allowances for kids, the family budget and cash flow, college funding, insurance needs, health issues involving family members, retirement and estate planning, the role of financial advisors, and the preparation of heirs and family philanthropy. At some point decisions have to be made and actions have to take place to manage the various components of a financial plan. But all too often these decisions and actions are put off and not addressed until something happens: there is a death in the family, a divorce is contemplated, or a family member's health is in question. By then it is often too late for a dispassionate and carefully crafted conversation to take place.

The inability to communicate about important family matters is so common that it is often an element in popular culture. "Meet the Woggels," a 2012 episode of the award-winning series 30 Rock, used the fear of communication as a plot device. Head writer Liz Lemon, played by Tina Fey, desperately tries to get network executive Jack Donaghy, played by Alec Baldwin, and his demanding, overbearing mother, Colleen Donaghy, played by Elaine Stritch, to tell each other how they feel after years of not communicating, since Colleen is critically ill. In the final scene, the mother and son finally quickly share extraordinarily intimate feelings with as much emotion as they would bring to discussing the weather, then instantly return to their traditionally uncommunicative selves.

While it can make for great comedic fodder, in real life, the inability to talk about money can have tragic results. But that need not be the case. The goal of The M Word is to show that, beyond the experience of the death of a loved one and the deep sadness and sense of loss that can be associated with a divorce or diminished capacity, life transitions that involve money can, in fact, yield positive "happy endings" if communication and trust are part of the family culture. Healthy family financial dynamics require members of the family to treat one another with respect and with some form of equality. They require members of the family to be appropriately informed and engaged in communication with one another about the family, its assets, and the issues surrounding the transition points. Trust has to exist, and communication needs to take place over an extended period of time. And the family leader needs to practice intelligent financial planning, usually with the help of competent and caring professionals.

Achieving this kind of healthy family financial culture is not easy. Family members need to work hard and sometimes reveal vulnerabilities and take emotional risks. There will be times when pushing forward and having the Money Talk will be difficult, maybe even painful.

But not having the talk can be disastrous to the well-being of our society's most important social structure: the family. The absence of this conversation places the family and its assets at risk. Like Joe and Beth, many families have their assets depleted and their members divided and separated for more than one generation. Saying nothing or saying the wrong things can cause real and potential rifts, both today and for years to come.

Adding to the urgency of this issue is that an unprecedented transfer of wealth is taking place in our country. According to the Center on Wealth and Philanthropy at Boston College, $15 trillion will be passing between 2007 and 2026, and more than $59 trillion will be passing between 2007 and 2061. Those in the greatest generation, those who fought in World War II, are passing their assets to their heirs, the baby boomers. And the boomers are now preparing to transfer their assets to their own children. There are big dollars involved, and the impact on families across the country is enormous and also unprecedented.

With a 70 percent failure rate when it comes to transferring wealth, in the context of this huge transfer of wealth that is taking place, large inheritances are being forfeited to lawyers, assets are being mismanaged, and relationships are being poisoned. I believe this is primarily because parents and children, husbands and wives, and brothers and sisters find it difficult, if not impossible, to talk to and trust one another when it comes to the family's money. The bottom line is: if families do not talk about money, they can potentially lose both their money and their family.

So why is it so hard for families to talk about money? Why is it as hard to talk about money as it is to talk about sex? Why do relatives find discussing money matters such an embarrassing, sensitive topic? Why don't these necessary conversations take place regularly?

Advocates of a return to traditional family values and structures often argue that the shift in the composition of the American family is at the root of many of our problems.

There's no question that the family is the most basic unit for the preservation and transfer of wealth, both within the immediate family itself and from one generation to another. Just about every key life event in a family unit involves money: marriage, birth, divorce, remarriage and blending families, educating your children, dealing with health issues, caring for an elderly parent with long-term care issues, dealing with the transition of a family business, a new job or the loss of a job, a sudden financial reversal, retirement, and death.

And there's no question that today's economic unit, or household, is very different from what we would have thought of even 20 years ago. Dr. William H. Frey, an internationally known demographer, professor of population studies at the University of Michigan, and a senior fellow at the Brookings Institution, notes that the baby boomers led the trend away from traditional family units, marrying later or not at all and divorcing at high rates.

According to the U.S. Census Bureau, in 2011, the United States had 118,682,000 households, of which only 49 percent included a married couple. Compare that to 1960, when a robust 74 percent of households included a married couple. There is also a rising trend toward single moms and dads as the heads of households. Single moms made up nearly 11 percent of family households, while single dads made up nearly 3 percent.

Living arrangements in America are also rapidly changing, especially when it comes to both same-sex-couple households and the recognition of same-sex marriages by individual states. Approximately 593,000 same-sex-couple households lived in the United States in 2010, or about 1 percent of all couple households, according to the American Community Survey conducted by the Census Bureau. But changing living arrangements do not appear to be a major factor making Money Talks more difficult. According to Williams and Preisser, the statistics on transferring assets between generations is not linked to family structure and extends beyond the United States. So if it is not the changing family composition that makes the Money Talk difficult, what does?

To answer that question, I asked nearly every guest who appeared on my radio show why he thought money is so difficult to discuss. I also read many enlightening books on this topic of communication from well-known experts such as Deborah Tannen, author of I Only Say This Because I Love You and You Just Don't Understand: Men and Women in Conversation, and Kerry Patterson, Joseph Grenny, Ron McMillan, and Al Switzler, authors of Crucial Conversations: Tools for Talking when the Stakes Are High. I studied books such as Silver Spoon Kids, by Eileen and Jon Gallo, and Money Doesn't Grow on Trees: A Parent's Guide to Raising Financially Responsible Children, by Neale S. Godfrey, which focus specifically on talking to your children about money.

As I did my research, one thing that struck me was that these books and others like them tend to touch only lightly upon the topic of having difficult financial conversations. Some of them avoided the M Word altogether and discussed every other issue that arose in a family or workplace. The few communication books that addressed the issue explored "money conversations" like asking your boss for a raise, discussing allowances, or speaking with siblings about the financial arrangements required to care for an aging parent. Aside from these few situations, most of the books about the communication breakdown between family members or others had little to say about money. And even if they did discuss the subject, there was no specific advice on how to engage in tough money conversations with family members.
(Continues...)


Excerpted from The M Word by LORI SACKLER. Copyright © 2013 by Lori Sackler. Excerpted by permission of The McGraw-Hill Companies, Inc..
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents

Acknowledgments vii

Introduction xi

1 The Money Talk 1

2 Life's Transitions 21

3 Changes in Financial Circumstances 27

4 Remarriage and Merging Families 37

5 Retirement Planning 49

6 Caring for an Elderly Parent 59

7 Preparing Heirs, Estate Transfers, and Business Successions 73

8 Preparing the Inner Landscape 95

9 Preparation Pays 143

10 Ask for Help 165

11 Practice Makes Perfect 197

A Final Word 213

Epilogue 215

Disclaimers 221

Note from the Author 222

Notes 223

Index 229

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