What’s fair vs. equal within families?

PB WHOLE FAMILY

ANITA SAGGURTI: Thank you so much for joining us. My name is Anita Saggurti. I am the Next Gen Strategy Executive here at Bank of America Private Bank. I'm very happy to be here today to talk to you about fair versus equal. This is a topic that affects us all, whether it's splitting a dessert, work, a collection or inheritance. We all wonder if equal is fair and if the hand we are dealt is fair. And unfortunately, the ramifications for feeling like you're being treated unfairly can be very high. For many of our clients, this has a unique application as it applies to their wealth and legacy. Based on our research, as people begin estate planning, they often plan to divide their estate evenly among their heirs. However, as we all discuss, issues such as children with greater needs, family members engaged in the family company, and sibling dynamics can complicate the question. I'm thrilled to be here today with our wonderful panelists, Dr. Karl Pillemer, Jennifer Erdelyi and Rocky Fittizzi to talk to us about the issue and how to navigate it. Dr. Karl Pillemer is a professor of human development at Cornell University. He's also the author of 30 Lessons for Living and Fault Lines, Fractured Families and How to Mend Them. Karl has also previously participated in Bank of America events and is a key partner of ours as we think about the issue of family dynamics. Jennifer Erdelyi is a wealth strategist here at Bank of America Private Bank, and is the head of our Center of Philanthropic Excellence. Prior to joining the bank, she was a practicing trust and estates attorney and also taught a well drafting workshop as an adjunct professor of law at Nova Southeastern University. Rocky Fittizzi is a wealth strategist here at Bank of America Private Bank, the head of the Next Gen Center of Excellence and he has been helping with financial counseling for over 20 years now. Rocky is also the champion of our bank's financial empowerment program and is an officer for the northeastern New York Princeton Alumni Association, where Rocky teaches senior seminars at high schools and conducts interviews for Princeton University. Thank you again all for being here today. Let’s get into the discussion. Karl, why don't we start off with you? I'm curious to know a little bit about what drew you to this topic of fair versus equal.

KARL PILLEMER: Well, first, it's a real pleasure to be here and great to work with the Bank of America folks again. I got into this through really a career long program of research on the topic of what happens to families after children become adults. What are the dynamics of families after the kids are no longer small kids at home? And I'd remind folks that this is the longest amount of time we have with our kids, because of the expansion in the human life span. We have 30, 40 or 50 years with our parents, kids and siblings as adults. So I've studied things like how families organize care for older relatives, how siblings get along in adulthood. I've looked at parental favoritism, a fascinating topic in later life. And I think most relevant to our discussion today, I've been studying for about ten years rifts in families, estrangements when families really split apart. One thing we learned, and it's what led me to some of these collaborations, is a striking number of those rifts are caused by money and financial problems, problems with wills, problems with inheritance, problems with the transfer of a family business. And I think part of our discussion here today is how to avoid that worst-case scenario and have a more harmonious distribution of resources. So looking forward to it.

ANITA SAGGURTI: Thank you so much, Karl. And you're absolutely right. I think one of the main goals for all families is keeping harmony among the family. And so trying to figure out how to avoid any kind of disharmony is a key factor of why we're here today. Rocky, I'm curious about what drew you to this topic and what you've seen with your clients as they deal with this issue.

ROCKY FITTIZZI: Thank you, Anita, and thank you, Karl and Jennifer, for being here. I've been a wealth strategist now at Bank of America for 15 years, working with the private bank and our high-net-worth clients and as importantly, their families. With the level of complexity, with the level of wealth that our clients have, comes a level of complexity as well. They have family businesses. They have complex investments, real estate holdings. So, we provide them with the right team of private client advisor, a portfolio manager, a trust officer, and also a wealth strategist in the form—my form, Jennifer’s form, to work with their families and to also be the listeners and provide financial counseling services to them. The reality is a lot of our clients say, you know our family's better than we know them in some cases. It's easier for their children, in some cases to listen to us than to listen to their parents giving them financial advice or personal advice. So we provide that level of service and ability for them, for their families to provide the right guidance for them. Also, separately, I'm seeing this every night at home, too, when we talk about family dynamics and fair versus equal, because I have two-year-old twins now. So, on top of that, you see this at the dinner table with who eats the right amount and still wants dessert versus who doesn't and what's there as well. So we see this plenty at home too.

ANITA SAGGURTI: I mean, your kids are absolutely adorable, Rocky. And I totally understand. My sister and I still fight about who gets a larger slice of pizza or the larger slice of cake as we're eating. Jennifer, tell me a little bit more about your role and what drew you to this topic and how you help your art clients.

JENNIFER ERDELYI: Yes, thanks, Anita. Happy to be here. So both in my prior role as a practicing estate planning attorney, working with families on their estate planning, as well as in my current role as a wealth strategist like Rocky, working with many different types of families, this topic of fair versus equal seems to come up quite a bit. Sometimes it's something that's directly spoken about, and other times it seems to just be underlying the surface, but it's part of the whole dynamic in terms of planning. So really, I think part of my role as an advisor is being a good third party that can listen to the families, as Rocky mentioned, really get to know them, get to know the structure of the family, get to know their goals and what the issues are and what the dynamics are, and really try to help find solutions that can guide those families in their planning needs. You know, I thought it was interesting that I saw recently there was actually someone that wrote in to an advice column in The New York Times specifically talking about this very issue. And what she said is that she was upset that her parents had shared that they were going to be leaving their estate to this adult woman, her brother and her brother's two children equally as opposed to just leaving it to her and her brother. In fact, this woman was actually the caregiver and lived close by her parents. And so she felt very upset about this and wasn't sure how to handle it. And so I thought it was really interesting that it's a topic that many people deal with.

ANITA SAGGURTI: Yeah, no, it's pervasive. And like we said, it doesn't matter who you are or what your family structure looks like. The conversation around what is fair is to everybody an incredibly important one. And we've heard a little bit from you, Jennifer and Rocky, about how practically it's affected your clients. But Karl, I'd love to hear a little bit more about what your research has told you, how we can look to see situations that might actually rise that address this issue of fair versus equal and how we can address them better.

KARL PILLEMER: Sure. And I think this is a great topic where what we know as researchers really maps well on to the practical experience, I think, of advisors like you folks. There are a couple of secrets, I guess I would say at the beginning. They aren't really secrets, but sort of insights from research. One is that you might ask, so what's the big deal with fair versus equal? I mean, you hear people say all the time, I treat my kids equally or your siblings will say, we have each other's back. Isn't this something everybody understands and knows about? Well, the answer is obviously no or we wouldn't be here and folks wouldn't be listening to us. So I think the one key point to remember is from research, fair and equal are very different things. And the first secret is that there essentially is no such thing as equal treatment in families. It can't be. It's impossible or nearly impossible. So, for example, if a family has younger kids, if Johnny has special needs or is developmentally disabled, parents have to allocate their time differently. If Becky, on the other hand, is an Olympic level skater, they have to invest time in her. What we do know from research, though, is that unequal investment can be smoothed over through openness and communication and transparency. Children need to perceive something as fair, even if it's unequal, and they can do so and they do do so. And this occurs in adulthood as well. So if Betty has cared for parents, really been the one who's there, it's possible that she'll benefit unequally in an inheritance. But as long as that's communicated about, it can be perceived as fair. One last piece I'll mention, I want to give a word to parents. We've done extensive studies of parental favoritism, and we've learned two things. One is that most parents do have preferences among their children, even though it's a taboo subject. Two thirds of the parents in our study have one child whom they're the most emotionally close, for example. But they do a marvelous job if they're successful of not showing it and not acting on it. And they're pretty successful because almost all the adult children in our studies don't know who the favorite is. So I'd say this is a complex issue. It's hard to be fair and equal at the same time, but if you keep some of those concepts in mind, you have a way, I think, to avoid the negative things that happen in families that we've seen.

ANITA SAGGURTI: I think that's so interesting, Karl. I mean, the research really does map onto a lot of the questions that we've just been, you know, thinking about and addressing. And Jennifer, I'd love to hear about how what Karl has just mentioned applies to your clients and how you've seen it come to life.

JENNIFER ERDELYI: Yes, I think everything Karl said, it's true. It really does map, as you say. It really is—it comes up in our conversations with clients very regularly where we'll see that what's perceived by one child in the family may not be perceived as another as being fair. And I think really, it's the experiences that the family has had that leads someone to feel as if something is fair or not fair. It's the lifetime resources and where they've gone, as you've said, Karl, that's very important. That's come up quite a bit in my work with families where there may be a child who takes some of the family resources, whether that be in time or money, and therefore the other children may start to have some resentments. And so the parents may feel that they want to do something differently with their estate plan to more or less make up for that. There may be different emotions that are involved. You know, there are different tangible types of assets that one child may have a particular sentimental attachment to, and maybe they feel that that's something that they are entitled to. Another issue where we see this arise is with planning for vacation homes. You know, there's a lot of emotion that's tied in to the memories that might be made at a vacation home. And so sometimes parents struggle with, do we keep this in the family or how does this work? And I think really, when it comes down to it, you know, as Karl had said, what's fair may not be what's equal. In fact, that New York Times article that I mentioned, they left off with fairness may be treating people in different ways. And I think that's a lot of what we see and what we work with.

ROCKY FITTIZZI: And I'll chime in here, quickly. We're digging into some of the personal and emotional factors right here, which are certainly important and we don't want to understate that. But there's also the financial side of this, which is you have parents that are hesitant to even have the conversation about wealth with their children. They're worried it'll zap their work ethic. They're worried they're not mature enough, or it'll just take away the incentive to be successful on their own. So as advisors, though, we have to let them know that that is a big part of it. You don't have to necessarily give dollar figures and values to what their estate is at a young age. But what happens if our clients get hit with that proverbial bus at a certain time, and are their kids prepared? Are they ready to inherit the level of wealth that they're going to inherit? And have we educated them and worked with them along that path to make sure they're there and comfortable if something were to happen to them at that time?

ANITA SAGGURTI: I've heard from all three of you in this last little bit that conversations and openness are key to addressing this fair versus equal question. I know it's already hard to have even that inception conversation as Rocky you just mentioned, but are there additional taboo subjects and taboo conversation points that families should not be scared of having because it's key to, you know, harmony in the long term?

KARL PILLEMER: Sure. I could chime in there. And I think that's such an important point, because one thing we learned in families where estrangement or a rift occur is there's a cascade of a breakdown in communication. People just stop communicating and stonewall at some point. I think there are three things that we've found that are often taboo that shouldn't be. And maybe one I'll toss in there that is talked about a lot and maybe should be taboo. The first is the issue of expectations that we have for one another and families. I love the expression that expectations are disappointments waiting to happen. And it's extraordinary in the families we've studied how people have the impression that the other members of their family are mind readers, that they will know what their expectations are. You know, a concrete and common example is Mary is the unmarried child with no children of her own who lives near the parents. Their parents are failing. Everyone's expected Mary to care for the parents, whereas Mary plans to retire early, join the Peace Corps and then go live in Paris for three years, and no one's talked about it. Mom may also be expecting someone entirely different to care for her. So we have to talk about our expectations. Values are another big piece that families don't discuss, and it's the core of a lot of financially related problems, fights and difficulties. One part of the family, or some members, may see philanthropy as a key. Others may want to acquire more wealth for themselves. Third, and this is one that it's hard for people to talk about it, and you touched on it, Rocky, you've got to talk about mom and dad's mortality. And it's the adult children who are culprits here that when some of us try to talk about wills or moving into senior housing, you know, you get the holding your ears and nah, nah, nah, because people don't want to hear it. Finally, the thing I wish families, when they're making these decisions and plans could talk about less is rehashing the past. Our studies show that we all have very firm narratives about what our childhoods were like and what our families are like. As you're doing this, planning to go back to Mom always liked you best is never very productive. So families should try to focus on the present and future and make the rehashing the past, I would say, a bit more taboo.

ROCKY FITTIZZI: I agree, Karl. Yeah, there are certainly taboo topics in every family and the difference is, you know, one of the big differences is it varies between family to family. So as an advisor, you have to be that listener and know what may be taboo to one family, which might not be to another family. I've always found the ideal situation would be one where an entire family lays out their full financial picture, their full value proposition and goals for the family and their wealth and estate plan. But in reality, that doesn't happen that way. Each family individually does it differently, and you have to be in tune to what they want to do and the way they act and then proceed from there.

JENNIFER ERDELYI: Yeah, Rocky, I like what you said that, you know, almost every family has something that's taboo. And what I think is that the family may think it's taboo, but really, we may have seen it before. Maybe other families have dealt with the exact same thing. So what I think is really great is when families are open to talking with us about that, because as an objective advisor, we can look at the situation and maybe see things through a little bit of a different lens, and that can really help with finding a solution to what their issue is. We may have dealt with it before with other families as well. You know, an example too that I can think of is I've worked numerous times with older documents, estate planning documents that may have a provision that prevents adopted children in the future from inheriting wealth from the family. And I think that maybe years ago there was some concern that maybe someone in the future would adopt someone just to legally bring them into the family and allow them to share in that family's wealth and that they wanted to prevent that. However, nowadays, in more modern times, we're dealing with issues of infertility. We're dealing with many families that have members of the LGBTQ community, and there's more adoption. And so is that really fair that an adopted child would be excluded from the family's wealth? So as advisors, we can talk a little bit about as an example, how you can get that trust to possibly be modified so that it can be fairly shared within the next generation.

ANITA SAGGURTI: That's so interesting. And I think a couple of things that I found very interesting was that, one, this conversation is really delayed. People tend not to have this conversation. And that also is something that we've seen in our own research. We've, you know, surveyed a bunch of our clients and more broadly high-net-worth individuals. And what we found was that most people start having this conversation about wealth and what their estate plans are going to look like with their heirs, when their heirs are at an average age of 27, which is quite late in life, because at that point you've already grown, you've matured and you are a very different person than you were when you were 17, living in a household, and again, challenging those assumptions of who that individual was and having those open conversations are incredibly important. Their lifestyle might have changed, their goals might have changed. And so I think that's really, really important. And Rocky, I'm curious, what you've seen is age—does age actually have a huge impact on how those conversations go?

ROCKY FITTIZZI: I think it's age and it's also maturity. I had a client once say to me, I'll know when I should have this conversation about wealth with my children because they'll ask the right mature questions about our wealth and our family wealth. And that's just one example. Again, it varies from child to child and family to family, but I think age is certainly a factor and I think maturity is certainly a factor for how they want to have these conversations. But again, as advisors, it's on us to bring this to the forefront and say to them, hey, you need to have these conversations in case that proverbial bus is going to come along. So.

ANITA SAGGURTI: Interesting. Karl, do you have any thoughts on that as well on how age affects those conversations?

KARL PILLEMER: I think it's really important to understand that it's true that our families are in a way, stratified by age. You know, we think of the family unit, but you really do have different generations and those generations are different. And let me just give two examples. One from a number of years of developmental psychological research, we know that people, when they get to their sixties and seventies and beyond, have different developmental tasks. One thing is that they become aware of a more limited time horizon, and that doesn't so much make them depressed as get them to thinking about their decisions in a different way. So older parents are much more likely to feature as highly important people and experiences over more acquisition of material wealth. However, their offspring are in a much more acquisitive and career building phase. So you have that kind of structural difference. Also, for older people, they're very motivated by a sense of generativity that psychologists call it, where you want to contribute to a future that you, yourself, may not live to see. And so that creates another difference. You know, the third difference is there's been maybe five decades of research showing that even though adult children love their parents, parents are more invested in the relationship. Older parents have invested already. So if you look at surveys, older parents are much more likely to view the relationship as critically important and just to want their children around and to see that relationship is critical to their well-being. And their adult children are building their own lives. So even if they love their parents, it's not quite the same thing. So I think that's, I think, this point you have a little bit of cross group communication in families. It's not that we're all on the same page because of where people are developmentally and where they stand in family generations. So I couldn't agree more with these observations.

ANITA SAGGURTI: You know, I've loved hearing a little bit about conceptually how the conversation affects clients and individuals more broadly. But I'd love to bring it to life a little bit. Jennifer, Rocky, do you mind sharing some examples of situations that you've seen where this issue comes to life?

ROCKY FITTIZZI: Sure. I'll start with the classic family business example is what I call it. You know, parents have their own family business and multiple siblings or multiple children, one that wants to be associated with the business and continue to work there, and maybe another one or two that want to, you know, follow their own passion and work somewhere else. So all of a sudden, you have a business that's highly successful because one of the children has grown that business and helped improve the value of the estate, while the other two haven't. When it comes time to do the estate plan and have the conversation about wealth and who should receive what, you can make the argument that it's fair that the individual that worked and grew the business is the one that should receive more of the assets at the end of the day. Now, at the other point, the parents want to keep it fair for all three children or however many children they have. So the conversation is what is actually fair there and what is equal. I don't think there's a right answer for it. It depends from family to family. But you can make the case for both, really, if you think about it.

JENNIFER ERDELYI: Yeah, we deal with that situation often, Rocky, don't we, with a family business and what's fair and what's equal. Another that I've seen come up I mentioned earlier planning for the family vacation home, and I've seen that numerous times. There's been much that's been written about the different types of planning techniques that you can use with a vacation home. But when it comes to the dynamics of the family and looking at the fair versus equal question, sometimes you've got some members of the next generation who may really widely use with their own family that family vacation home and others who may live across the country or for some other reason may not use the home as much. Very often parents think, I want to leave everything to my children equally, and that means I'm going to leave this family vacation home to all of my children equally. However, if one doesn't necessarily enjoy it as much as the other, or if there's maybe some estrangement between the siblings and they're not going to operate very well on a timesharing schedule and paying property taxes and keeping up with maintenance and all of the things involved, it just may not make sense in order for that asset to be left equally to the children. So what might be fair is that that vacation home is left to the children who do actually use it so that their families can continue to enjoy it. And maybe there's an offsetting asset that's given to the other siblings, so that they can also feel as if it was a fair distribution.

ANITA SAGGURTI: I think that's a great example and one I've seen somewhat recently with a family that had a house, townhouse left to them among three different individuals. And they've been in loggerheads now for many years trying to figure out what to do with it. Whereas in this scenario where you come up with this, you know, creative idea of how to offset, you actually are able to help move away from any kind of friction that would happen in the future. And this is in a lifetime movie, right? In the lifetime movie, you'd have the situation where the three siblings, you know, have some kind of situation where they all come together. There's a hurricane, maybe the roof collapses, whatever it is, and they all come together and they build the roof together again and are reknit into a very close, tight-knit family. Like I said, it's not a lifetime movie. This is reality and we need to plan accordingly. And Karl, I mean, we've talked about this, what can we do to get us closer to that lifetime movie scenario?

KARL PILLEMER: Right and I’d add, I have a daughter who’s a film producer who makes a lot of lifetime movie, would have to be the romantic interest in there somewhere.

ANITA SAGGURTI: We’ll work on that.

KARL PILLEMER: But it's true and I really resonate to these comments. It's extraordinary in our studies how often a piece of intangible property is invested with love and emotion. I mean, one family we had was at the Thanksgiving platter that had served turkey for 60 years that can't be divided. So I think that's so key. I think there are two things that we know from our studies and others that may help families. One is preventive and one is first aid, I would say. Many people who I'm sure are listening here are involved in businesses where they think about their business’s decision-making culture, and that's what families can do. A simple exercise would be to sit down and have everybody think individually about the question: how does our family usually make decisions? What are we like? And then talk about it together. And some questions you could use would be, do we have trouble making decisions? Where does that trouble come from? Do we hint around about things in our family, or if we need something to do, we come out straightforwardly and say it? Are there teams or are there alliances who talk to one another? Do we feel like we can come to our family for support and help, or do we go elsewhere? If families do that kind of thinking and talking early, exactly what you folks have said, you avoid getting into problems at the flash point where a crisis has occurred. So that is the prevention. For first aid, and we've touched on it a bit, getting an objective third party to help you with these decisions can be absolutely critical. In our studies of estrangement, where family members had not spoken for five or ten or fifteen years, and some of those occurred over financial issues, when I would ask them, what could you do to resolve this problem? Over and over I heard the equivalent of build a time machine and go back and get an objective outsider who had everyone's best interests at heart to talk to them. And it does not have to be a psychotherapist, a mediator which exists in many communities, certainly financial advisors can play this role, but over and over people told us, I wish we'd brought in some kind of formal help. So this is one of those situations where families, if it's going south, if people are in danger of not talking to one another as a result of this, don't try to tough it out. Bring in someone objective who can help you with that decision and many people who didn't, really regretted it.

ANITA SAGGURTI: I think that's a great idea. You know, touching upon this earlier on and starting to have these conversations and bringing in a third party is a great way to start, you know, smoothing out these kinds of areas of complication. Jennifer, are there other areas and other things that we can do or families can do to help create more connectivity?

JENNIFER ERDELYI: Yeah. You know, what comes to mind, Anita, is my work in the philanthropic space. Really, you know, Karl touched earlier upon the family wanting to see the next generation, even if they're not going to be there, sort of living out the family legacy. And I think philanthropy really fits that bill. And so the opportunities to maybe get the family involved in a broader picture, their mission, their values and living that out and what that looks like and the opportunities that may exist for an older generation to include the younger generation, despite any rifts and despite any changes in viewpoint or differences in viewpoint, they can get involved in that family philanthropy and that endeavor. So we work with families very often. There's been a lot more focus on philanthropy since the Giving Pledge was enacted by Bill and Melinda Gates, and Warren Buffett. You see Mackenzie Scott, who is very much on a mission right now and giving away dollars to many different philanthropies around the country. And we're also having those conversations with our clients. And I think it's a great opportunity to really bring families together and look at family harmony in a different way that can build there in that setting.

ANITA SAGGURTI: I think that's so true, Jennifer. Bringing your family to talk about something different other than just one's estate, like a philanthropic legacy and giving them an opportunity to collaborate on this can be really important in creating cohesiveness within the family. As we close out today, I'd like to leave you with some key takeaways. First, have conversations with your family sooner rather than later. Second, don't make assumptions. Involve your family members. Ask questions and be curious. And third, don't be afraid to bring in a third party whenever needed. Remember, these conversations are meant to be dynamic and ever changing. And feel free to contact your advisor or one of our teammates for additional information or help on how to have these conversations. Thank you so much for joining us and we look forward to meeting with you soon.