When families feud, nobody wins.
What causes reasonable human beings to defy the advice of trusted advisors and lose sight of the costs of family fighting, not only in terms of money but vital family relationships and peace of mind? A best-case scenario is exemplified in the Wall Street Journal article, “Inside the Breakup of the Pritzker Empire.” In that situation, the family experienced years of fighting and lawsuits but was ultimately able to successfully navigate the succession and keep the companies intact. In fact, the value of the businesses doubled to $30 billion by 2011, a decade after the restructuring.
The critical ingredient for a positive outcome in the Pritzker case was that skilled advisors provided a guiding influence to manage the intense emotions and competing needs of the beneficiaries.
“By resisting the impulse to dispose of the assets in a fire sale to quell a family feud, people involved in the process kept the companies intact and helped boost their value,” Tom Pritzker said. Yet, all too often we have seen the opposite happen, where family differences can derail the process and destroy a family’s legacy.
We have identified five common dynamics that cause family disagreements and disputes that can develop into a full-blown family breakdown.
The Five Feudal Dynamics
Some advisors tend to categorize emotional issues as “soft” issues, when in fact they are critical. It is imperative the industry reframes “soft” issues as entirely relevant, front-end problems. It is extremely important that advisors and their clients are comfortable navigating strong human emotion, from rage and bullying to guilt and martyrdom.
Family feuding takes many forms and can be looked at through several different lenses, but for the purposes of this article we’ll look at family feuding as it relates to the adult siblings settling the estate.
1. The desire to “win” at any cost
Wanting to win means one family member feels right, so someone else has to be wrong. Winning is the only goal, yet it is often a Pyrrhic victory. In one situation, a woman lamented that she would have to share her inheritance with her father’s second family.
“I would rather spend all the money in legal battles than let them get any of it. I don’t care how bad I feel, I have to win. If I give in, I lose, and I just can’t let that happen.”
Although the woman’s response was somewhat understandable, she failed to realize the consequences to her own financial health. By seeking to win at any cost, she was throwing away her own inheritance.
2. A parent’s need to “punish”
Some adult siblings never forget lifelong squabbles or rejection. Often these problems are caused by parental neglect or favoritism.
Consider the case of “Ben,” who never felt accepted by his father. He had always been his mom’s favorite. In a way, his mom preferred him to his dad. So, when Ben got older, his father waged a war of ongoing criticism. Holidays were nightmares for Ben.
Ten years later, Ben was left out of the estate. His dad left his money to Ben’s two older siblings. Their mom had passed away some years earlier.
The siblings fought it out in court. The estate, which began at $75 million, dwindled to $35 million after legal costs.
3. The fear of losing perceived gains
Often, family possessions take on heightened emotional value and become the focal point of a family’s battle. In some cases, the actual value of these items — beyond sentimental importance — is relatively modest. In other cases, millions could be at stake.
In one scenario, siblings sought to hide millions in jewelry from the Internal Revenue Service (IRS) after their mother’s death. Fighting erupted over who would get the mother’s wedding ring. Then the brother gave the ring to his wife, triggering a family meltdown in the trustee’s office. The trustee, who wasn’t aware of the plan, filed an amended tax return and the siblings ended up paying steep fines and penalties. In the family’s desire to hang onto the jewelry they ended up paying dearly.
In another family, the siblings were divided over whether to sell $120 million in stock that their grandfather had purchased for pennies on the dollar back in the 1920s. Two siblings wanted to hold on to the shares, and two wanted to sell. The dispute escalated, with each side rigid in their beliefs. Their advisors encouraged the family to begin to sell to reduce the concentrated position, but no amount of discussion could break the stalemate. Ultimately a legal battle ensued, the stock fell in value and the family lost 95% of their money.
4. The desire to be “right”
There may be two sides to every argument, but when families fight, both sides feel they are right. Adult siblings may feel the need to be right at any cost, or they may feel a certain moral superiority. In either case, the desire to be “right” will make the stakes go up considerably.
In one situation, an aunt who was the trustee for her late parents’ estate didn’t approve of her niece’s lifestyle. Even though the niece was named in the will, the aunt tried to prevent the niece from inheriting. The niece sued, ultimately receiving her share of the estate, but the court case cost thousands of dollars and the two never spoke again.
In another family, the father was an entrepreneur who had created a business worth $250 million. He had three adult children with his first wife and a 12-year- old daughter with his second, younger wife. After he passed away it became necessary to sell the business to distribute the assets.The families sought qualified appraisers yet continued to stalemate over the price. Feuding between the siblings and two families became so intense that forward movement was impossible.
One side wanted to take the bid, while the other side wanted to get more. Feuding erupted, communications ground to a halt and everyone hired their own legal counsel. Both families watched as the fees mounted and the value of the business diminished until ultimately it was sold off for its parts.
In an attempt to be “right,” both sides lost sight of what they were losing in the battle. For years after, each side blamed the other for the outcome, never seeing they both held some responsibility.
5. A sense of entitlement
In many families, the children of first generation wealth can be inadvertently cast with a profound sense of entitlement. The benefactors are often self-made men and women who overcame hardships growing up. Incredibly focused and self-motivated, they want to provide a better life for their families and descendants. The result is second and third generations are raised in what is sometimes called a “luxury bubble.” These younger family members may be more likely to want to rely on the family wealth rather than build their own careers.
Consider the case of “Jane,” the great-grandchild of a cyber mogul. She has been feuding with her sister for 25 years. Her sister has two grown daughters. Jane never married and has no descendants, so she knows that when she dies, the joint trust funds will be distributed to her sister’s children. Jane, it would appear, has been determined to spend liberally, going through over $200,000 a month. She is waging her family feud through the trustee, whom she approaches regularly for an increase in her monthly disbursement.
Preventing Family Breakdowns
An empowered advisor can play a crucial role in preventing a family breakdown. It requires, however, a deep understanding of the relationship dynamics involved and a toolkit of sophisticated defusion techniques that can help create the sense that everyone’s opinions have been heard and that their needs can be addressed.
This material is provided for illustrative/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation.
©2016 The Bank of New York Mellon Corporation. All rights reserved.