April 2006

The Legacy Dilemma

By Catherine Fredman

Many people assume that writing a will is enough to get their affairs in order. But writing a will, as Toni Neubauer discovered, is just the first step in a complex process. “You’re not just making a will,” says Neubauer, who, as founder and president of Myths and Mountains, an adventure-travel company, often finds herself in precarious locales. “You have to deal with all the family garbage. And if you don’t, it’s going to stink afterward.”

How Americans deal with their family garbage—and their family jewels—is an imminent concern.

At least $25 trillion is due to be passed from the present elder generation over the next several decades. According to the Allianz American Legacies Study, a recent survey of more than 2,600 boomers and their parents by Minneapolis-based Allianz Life Insurance Co. (allianz.com), the transfer won’t happen easily.

As America’s 76 million baby boomers—born between 1946 and 1964—and their parents and grandparents confront the issue of inheritance, they are discovering that they stand on opposite sides of a generation gap rife with misperceptions, misunderstandings, and the potential for lasting family conflict.

“We are about to see the biggest transfer of wealth in history, and we found that everyone was focused on the wrong thing,” says Ken Dychtwald, the president of Age Wave, a market research firm that helped design the Allianz study. “Many people wrongly assume the most important issue is money. While money isn’t trivial, it belongs way down the list.”

Not the Same Old Inheritance / Until fairly recently, the transfer of wealth and property from one generation to the next was rigidly ordained: The eldest son inherited the bulk of his father’s property, younger sons were expected to learn a trade, and daughters were provided with a dowry. One of the less-heralded achievements of the 20th century was the breaking of that mold.

Today’s inheritance issues are unlike any previous generation’s, precisely because of 20th-century developments. First, there’s more property and wealth to be disbursed than ever before. Social safety nets—Social Security, the tremendous post–World War II growth of private pension plans, and Medicare—eased elders’ concerns about how to support themselves after they stopped working. Parents who grew up pinching pennies during the tight times of the Great Depression and the war years could begin to build a nest egg. As their savings grew, aided by a stock market that multiplied a jaw-dropping 40 times during their lifetime, the elder generation discovered there was enough not only to take care of their retirement but also to leave behind a substantial inheritance.

But the complexity involved in figuring out an equitable division has become more difficult than could ever have been imagined. Families are more complex, more varied, and more dispersed than they have ever been. Unprecedented rates of divorce, remarriage, and unconventional living arrangements among both boomers and elders have produced families that are a kaleidoscope of stepchildren, step-grandchildren, and children from multiple marriages. Thanks to greater longevity, decisions about property may involve four or more generations and include spouses, siblings, step-siblings, ex-spouses, domestic partners, adopted children, in-laws, friends, loved ones, and others.

Also, the well-publicized rift between today’s elders and boomers continues to affect families as they plan their legacies. Frugal elders are wary of their adult children’s spendthrift ways. Alternative lifestyles, especially illegal drug use, remain a sore subject. The Allianz study showed that elders are five times more likely to disinherit a child for drug use than for bad money management and three times more likely to disinherit an heir for drug use than for being in prison.

Communication between generations is more vital than ever to ensure that the needs of elders and heirs are aligned. Unfortunately, more often than not, that’s not happening. While a majority of boomers and elders surveyed claim to feel highly confident discussing the key elements of inheritance and legacy planning, less than a third of either generation has actually done so. And when they do, they often find that the discussions ignore the topics that each generation values most.

Intergenerational He Said/She Said / The miscommunications start with a deep-seated reluctance among many Americans to raise the topic of estate planning and inheritance in the first place. “People are more likely to tell you how many times a week they have sex than they are to confess their net worth,” says Ann Perry, the author of The Wise Inheritor. Inheritance, she adds, is “a triple taboo,” combining three emotionally charged issues: money, death, and family relations.

While there is natural hesitation to talk about such a sensitive subject, the Allianz survey revealed an added twist: Each party believes that the other is avoiding the issue. Further roiling this intergenerational game of he said/she said, both sides tiptoe around the topic for fear of upsetting one another.

When they describe attempts to discuss inheritance and legacy, elders typically report that their kids have their heads firmly buried in the sand. “Most of my kids don’t want to hear about death,” said one survey participant. “It’s like, ‘Don’t talk about it. You’re not going to die.’”

Meanwhile, the children don’t raise the issue because they are afraid their parents might think they’re just after their money. “We’re scared that our motives may be misinterpreted, that ‘Mom and Dad may think I just want their stuff,’” explains Marlene Stum, the author of Who Gets Grandma’s Yellow Pie Plate? A Guide to Passing on Personal Possessions.

As a result, according to a 2000 study by Rutgers University, some 70 percent of Americans die without a will. Nearly two-thirds of respondents in an earlier series of studies cited laziness as the reason for their inertia. But the Allianz study found an underlying cause that seems trivial but in fact is far-reaching: a mistake in semantics.

For most people, “estate planning” and “inheritance” are scary, dry terms. For both boomers and elders, “inheritance” implies that the sum total of one’s life work can be coldly calculated in dollars and cents, a process fraught with legal hair-splitting overseen by, as one Allianz focus group participant put it, “people getting in line and waiting for you to die.” “Estate planning,” said another, is a euphemism for “dying efficiently.”

“Legacy,” on the other hand, was found to be an immensely positive and emotionally resonant word. It suggests a road map for the future, a memorable and enduring imprint of someone’s life or simply the implication that someone’s life had meaning. While both generations recoiled from the finality of the concept of “inheritance,” they enthusiastically embraced the idea of leaving a “legacy,” because the word captures all facets of an individual’s life: family traditions and history, individual values and personal wishes, and accumulated wealth. “Legacy is not just money but your reputation, what you’ve done, the impact you’ve made in the world,” said one survey respondent.

Money vs. Memories / A complete legacy, according to the study, is built on four pillars. Boomers and elders uniformly agree that the most important pillar is values and life lessons; instructions and wishes to be fulfilled rate a close second.

Surprisingly, only 10 percent of boomers put a high priority on financial assets or real estate. For them, money is the least-important aspect of a legacy. Personal possessions of sentimental value are three times as important. Even more surprising, nearly four times as many elders differ, ranking cold cash above a much-loved patchwork quilt or a worn set of woodworking tools. Such statistics show the rifts that can rupture family ties and lead to bitterness and resentment.

That rift is epitomized by the 18th-century Spode platter that Melinda Marshall’s grandmother bequeathed her. It’s valuable, but Marshall wishes she had inherited a set of beaten-up earthenware mixing bowls instead. “I was incredulous when she said, ‘Oh, I got rid of that junk,’” Marshall recalls. “For me, the cookies she made in them and the fact that we used them together was what made them valuable. The Spode piece may be of value to Antiques Roadshow, but it wasn’t doused in memory.”

Items with emotional value are more likely than money to cause family conflict. As one boomer noted, “Money is the very easiest to divide. It’s the diamonds that become hard to figure out.”

Every estate-planning adviser can cite horror stories of families who go to court over a 25-cent Christmas ornament or a used boogie board, $10 million estates whose heirs are fighting over Mom’s grand piano even though they all have enough money to buy their own, or siblings who no longer speak because of the resentment over who ended up with family china. Possessions become a stand-in for love, and the bequeathals symbolize whom the parents love, respect, or trust the most. “What they are fighting over is not the financial value, but who is carrying on the family legacy,” says author Perry.

Parents can unintentionally spark ill will between siblings by ordaining who gets what without prior consultation. Two years ago, Jean Merriam’s grandmother specifically bequeathed her an antique armoire. Merriam didn’t really want it, but her mother insisted that she take it—even though fitting it into her living room involved removing a radiator and doing significant construction work. “Now I understand that my brother wanted it and even told my mother he would buy it,” Merriam says. “I never knew. I hate having this between us.”

Bridging the Legacy Gap / Leaving a legacy that everyone can love depends on elders and adult children being able to bridge the communications gap. But such conversations rarely come easily.

“Don’t be surprised if it’s too hard for a parent to deal with,” Stum cautions. “My own mom said, ‘I’d rather be dead than have to go through my things.’ At the same time, though, she kept saying,‘I worry that you kids are just going to throw this away.’”

Family occasions such as Thanksgiving, birthdays, or anniversaries are a good time to broach the topic, say experts. What-if questions are a tried-and-true conversation opener: “Dad, what would you want done with the things in the house if you and Mom were no longer able to live here?” A variation is to mention a friend or neighbor in a similar situation: “I heard that Sally Johnson recently moved into assisted living and had to give away a lot of her stuff. What would you have done if you were in that situation?”

Once the taboo is broken, talking about legacy can be an emotionally satisfying experience for both parents and children. A comprehensive conversation gives elders and their heirs an opportunity to share their most important beliefs, wishes, directives, and lessons learned throughout their lifetime. These issues may never be properly conveyed if parents and children don’t take the time to talk about them. Moreover, bringing the taboo topic into the open can help elders come to terms with their own mortality.

Clarifying plans and explaining intentions can make otherwise contentious decisions understandable and avoid lasting resentments. “My mother explained her motives and her emotions,” one boomer recalls, “so it was easier for me to understand where she was coming from.”

Knowing their parents’ intentions helps adult children chart their financial future more reliably. Some 40 percent of boomers surveyed said that knowing what they would inherit made it much easier for them to make plans—to pay off debt, to fund their children’s education, and to boost their retirement portfolio. Similarly, more than two-thirds of elders agreed that such conversations would help them understand their children’s wishes, so that they could better decide how to satisfy them—whether those wishes were about money, a family vacation cottage, or a battered copy of Winnie the Pooh.

Since starting to write her will, Neubauer has been slowly giving away things to her son and daughter. The operative word is “slowly.” “You can sit down and talk about who wants what and what it was and where it came from.”

Neubauer notes that the same process that works with personal possessions works equally well with the other elements that make up a legacy. “I think the important thing is to make sure the communication is there,” she concludes. “If you can talk, you can deal with anything.”