Buried deep in this process lie potential time bombs which, if not addressed thoughtfully, may damage client families over the long-term. Big money is dropping into the hands of unprepared beneficiaries. Complex structures to constrain the wealth are being created in ways family members may come to regret. 

As a family-dynamics consultant to ultra-high-net-worth families, I am watching this hasty creation of trusts, gifts, family-limited-partnerships, and other wealth transfer strategies occur with only limited attention to the people impacted by such actions. Some examples:

-Seven grandchildren ranging from 19 to 31 get $2.5 million each into their personal investment accounts with no preparation and no instruction other than “don’t touch that money till I tell you what to do with it!” Three kids have drug and alcohol problems, two are gleeful over-spenders, and one already struggles with guilt over her unearned wealth.

-Two adult children and six grandchildren each see $1.4 million show up and then disappear from their savings accounts into a hastily created family limited partnership. The general partner is the family patriarch, a man they’ve rejected since he divorced his first wife to marry a much younger woman.  He thinks “giving” them this tightly controlled money will win them over.

-Of four contentious siblings in a family business, three had their generation-skipping trusts terminated by the wealth-creating matriarch while one did not, for reasons yet unexplained.  This will severely destabilize the family business and probably the family itself.

I realize there is little time to sit everyone down in each situation and carefully walk through the family dynamics issues raised by these transfers. That may have to come later, if it comes at all.  But for wealth managers, attorneys, accountants, and tax advisors wanting to craft gifts that keep on giving - instead of exploding - here’s a few recommendations:

Take time to at least ask about the potential impact of tax-driven transfers on the family dynamics.  Encourage clients to examine the fallout that may occur down the road.  Though you may not be able to prevent all damage, you may alert clients to some of the relationship risks to themselves and their beneficiaries.

Stay open to clients’ concerns about the emotional pros and cons of various solutions you propose from a tax standpoint. Yes, one option may save the most financially.  But another option may be wiser from a family perspective. 

At the first client meeting post-transfer, beware of focusing too much on the wonderful complexities you engineered under time pressure.  The client may have woken up to the sober realities of what just happened.  Allow room for a broader discussion of the event, even if this makes you feel criticized or unappreciated. The client may simply have mixed feelings and needs to air them. 

Make room in the next few client meetings to ask about the impact of the money that has just changed hands.  Be supportive that there may be emotional adjustments that have to catch up. You may discover there is more fallout than you think – good and bad. Your clients will appreciate your asking, your listening, and your advice on handling the sudden shifts in wealth.

Especially for young or inexperienced beneficiaries, use these transfers as an opportunity to deepen your role as advisor and mentor.  Help educate the next generation about financial literacy skills. Set up meetings to walk through the reasoning behind the transfers, disentangle jargon, and guide how to cope with sudden wealth responsibly. There are many good resources out there for financial education of the affluent – recommend them at this very teachable moment.

At this unique season of tax-advantaged giving, be careful of elegant technical solutions wrapped up neatly for your affluent clients. Those packages may turn out to contain time bombs ticking in the family dynamics.  By addressing the deeper issues, you may defuse potential disasters and help preserve family harmony for your clients.

Jim Grubman PhD is a consultant to families of wealth, family offices, and the advisors who serve them.  His firm, FamilyWealth Consulting, is based in Massachusetts.