The plan was simple: Divide the family fortune in three, one part for each lucky heir.
Then talk turned to politics – and the kids blew it. Miffed by their children’s views, the wealthy parents opted for a single trust, with a trustee to mind the money.
You think your dinner conversations are uncomfortable? Stories like that one, recounted recently by a wealth manager in the battleground state of Wisconsin, are playing out more and more inside some of America’s richest families.
The nation’s painful divisions – over the 2020 election, the pandemic, race and more – have opened rifts among generations at the very moment vast fortunes are in play. Wealth managers say some affluent grandparents and parents have grown reluctant to pass down their fortunes, at least without strings attached.
Time is short: The ultra-rich could lose some of their Trump-era tax perks if the White House changes hands on Nov. 3. Advisers warn that arguments over politics risk disrupting careful estate planning at a delicate time.
True, rich families have bickered over money forever. And as they squabble and strategize like characters on HBO’s “Succession,” millions of ordinary people are struggling just to get by. But big money is at stake, and advisers say they’ve rarely seen politics and current affairs take on such significance in estate planning.
“There’s less tolerance for different beliefs,” said Joe Maier, director of wealth strategy at Johnson Financial Group in Milwaukee, who helped his clients revamp their estate plan. “I’ve absolutely seen people say, ‘If my kid is dumb enough to believe this, then I need to protect them from making dumb decisions about money – because they clearly don’t know what they’re doing.’”
In a country where wealth inequality has soared, the estate-planning decisions of the top 0.1% have enormous consequences. Baby Boomers and older generations hold 70% of U.S. household wealth, or more than $78 trillion, according to the most recent Federal Reserveestimates. Americans willinherit more than $760 billion this year, with an average tax of just 2.1% on those transfers, according to calculations by New York University tax law professor Lily Batchelder.
Handing off assets to the next generation is difficult in the best of times. The increasingly hostile and polarized political environment makes it even harder. U.S. politics “has moved away from spirited debate to a vile, vituperative, hate-filled morass that is unbecoming of any free nation,” Utah Senator Mitt Romney, the 2012 Republican nominee for president, said last week.
Wealthy clients are “having a hard time doing estate planning” at the same time that generations are facing “fundamental disagreements,” said Alison Hutchinson, managing director at Brown Brothers Harriman.
When older generations express opinions – about Trump, Black Lives Matter or other issues – their much-younger heirs aren’t staying quiet. Often grandchildren “are fundamentally offended,” she said, while “Grandpa is saying, ‘I don’t really trust that person’s judgment right now.’”
The next couple of months may be the last chance for rich Americans to transfer fortunes to the next generation without paying significant U.S. estate and gift taxes. President Donald Trump doubled the amount that couples could shield from taxes to $11.58 million for individuals and $23.16 million for couples this year.
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Advisers are telling rich clients tomove money before the end of the year to take advantage. Otherwise, former Vice President Joe Biden and other Democrats, if victorious in November, could tighten rules and slash the exemption amount as soon as 2021. Other conditions – like low interest rates – also make it anideal opportunity to pass on tens of millions of dollars to children and grandchildren tax-free.
“There’s pressure to make these decisions, but they’re irrevocable decisions,” said Jill Shipley, head of family governance and education at Tiedemann Advisors.
Many of America’s richest families are on the same page politically, at least in public. A prominent exception is the family of billionaire Rupert Murdoch, whose holdings include the Trump-boosting New York Post and Fox News.
In July, his son James Murdoch resigned from News Corp.’s board, citing “disagreements over certain editorial content published by the company’s news outlets.” Along with his wife, Kathryn, James Murdoch is one of 2020’s largest campaign contributors. The couple hasdonated more than $11.5 million this election cycle, primarily to Democratic campaigns and super-PACs supporting Biden and progressive causes, according to the Center for Responsive Politics.
The pandemic can make family feuds worse. “There are less family gatherings, there are less chances for polite conversations,” said Mitchell Kraus, an adviser and principal at Capital Intelligence Associates in Santa Monica, California. “So the only thing popping up on social media feeds are arguments about the direction of the country. It’s much harder to have conversations about things that are taboo like money.”
Many are still making estate plans, but friction over ideology and politics is prompting patriarchs and matriarchs to attach more strings to the money their heirs will receive. Strict rules on inheritances not only can stir up resentment – particularly among siblings who get unequal bequests – but also can create perverse incentives. Tiedemann’s Shipley recalls a former client who only let his three sons access their inheritances for business ventures – despite none of them being natural entrepreneurs. The result was a string of failed businesses.
Philanthropy is often suggested as a way for rich families to paper over disputes, on the theory that a foundation or favorite charities can give families a common goal to rally around. In this fractious environment, that can backfire, advisers say. Fights about politics or social issues end up spilling over into disagreements about where money should be donated.
“If you’re not careful, you can open up a can of worms,” Kraus said.
Many families go so far as to hire neutral facilitators to help establish ground rules on discussions. “Steering the family away from the kind of conversations you can’t take back is very important,” Tiedemann’s Shipley said. “Our job is to help the family remember, ‘What do you really care about?’ For most, it’s not a political party. It’s the family.”
Unless they’re diligent, families squabbling over the 2020 election may create more permanent rifts.
“Each generation, as it comes into maturation, wants to feel like they’re in charge of their own life,” said Coventry Edwards-Pitt, chief wealth advisory officer at Ballentine Partners. “Ten years from now, people are going to look back at this moment, and the decisions that were made.”
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