To tweak a phrase from Forrest Gump: life is like a box of conflicts. It’s true. Everywhere you turn you see conflicts of all kinds.
You’ve got the big ones, like wars. You’ve got the small ones, like not agreeing what show to binge-watch on Netflix. And you’ve got a whole range of ones in between, including ones that nag on you (like family troubles), ones that are simply annoying (not getting the contractor to finish the job), ones that have serious consequences (legal trouble), and ones that don’t ever seem to have a solution (insert your own hefty dilemma here).
I’d be naive to think that you can just wash away conflicts like stains from a shirt. Conflicts are part of life, and in many ways working through our troubles is one of the ways we grow and get stronger and smarter.
But there’s no reason you should have to deal with all of these conflicts on your own. And that’s where we come in.
As I hope you’ve seen from previous posts, a high-quality professional fiduciary wears many hats, but perhaps the largest one of all is the role of Conflict Solver. We aim to make life easier for you by finding answers—or finding the right people who can give you answers.
Here I’ll take you through some of the most common financially related conflicts I have seen in my three decades of serving clients and show you what we do to solve them.
The conflicts covered here and in Part 2 and Part 3 of this series focus on people who are a bit older—either they have firmly established themselves or are close to retirement. In future posts, we’ll take a look at some common questions I get from clients who are more in the just-getting-started phase of life.
Let’s get going. Here are Financial Conflicts 1–3 of this series:
Financial Conflict 1 – How can I be fair to all my children and grandchildren?
Dear Irvin,
I have one adult child who really has her act together. She’s financially independent, manages her money well, and never asks for anything. I have another child who hasn’t always found his way, has struggled at times, and has needed our help. I love them both dearly, of course. How do I handle the balance financially between helping one child while still trying to be fair to both?
—Robert
Oftentimes our clients run into major dilemmas about how they support children and still divide up their money fairly. What if one child or grandchild needs more financial help than the others?
Remember the story I told you in an earlier email about the grandchild who was in college debt and going through a health crisis? The grandparents wanted to help; they really, really wanted to. But they also were keenly aware that paying off a student loan and paying for the needed healthcare services was an extraordinary expense—and a gift that wouldn’t be equally valued among all the children and grandchildren.
Where we came in was to be the quarterback and then the scorekeeper—an impartial party that could track the money that the grandfather gave to his child and grandchild, so that it could be deducted from the grandchildren’s inheritance and help ensure fair distribution of assets upon the passing of the grandparents. We see this issue frequently, especially when it comes to families. So often one child is the one who really needs extra help, putting the patriarch and matriarch in the uncomfortable position of trying to help that child, but not at the expense of the other children.
These scenarios are very common, very real, and very frustrating. That’s why we’re there to look at all sides of a situation and work to come up with solutions. Part of our role is to solve family problems (or find effective compromises) early on to facilitate family communication and the relationship, because if the problems are not handled, they will fester and get worse and worse.
One of the common ways we handle a situation when you’re helping a child in need is to use the money earmarked for inheritance, so any present-time distributions are deducted from what the family member might receive in an inheritance. It levels the playing field, albeit in different periods of your life, while tracking each child’s distributions along the way.
Financial Conflict 2 – Is it OK to take out a loan?
Dear Irvin,
I’ve made a lot of money in my career, and I do well for myself and my family. I have plenty saved for retirement, and I do want to do exactly what you’re recommending—accomplish the things in life that I want and enjoy my life with my family. So here’s the deal: I want to buy a vacation home. I want to host my adult children (and their children) and make it a regular part of our lives together. I’m looking at a variety of loans. and, wow, there are a lot of options! What do you typically recommend?
—Nancy
When you have a fair amount of money, it’s not uncommon for you to want even more money to do something grander (hello, beach house) or for others. And if you’re in the place where you can make that move, that can be a wonderful investment for your enjoyment—and to use “something” to connect all of the important “someones” in your life.
Loans can be tricky business, between the terms, the taxes, the interest rates, and the repayment arrangements. Why do you have to figure it all out? The good news is you don’t!
Your fiduciary financial advisor can take a look at all the options and come up with best recommendations for whatever your need is.
Here’s one example. A client of ours, Ken, wanted to purchase a country house for his family. The problem was that Ken’s main source of income came from a large trust fund set up by his parents, and a bank would not give him a fair interest rate on a mortgage. Ken’s father had died, and his mom was still the trustee of the trust. Given that interest rates for “intra-family” loans were at their all-time lows, we advised our client that the best outcome would be to ask the trustee if he could borrow from the trust to purchase the house.
His mom agreed, and the loan was structured so that he would have to pay “interest only” for 10 years on the loan, and the loan could be extended another 10 years if the trustee agreed to continue the loan. If his mom died within the first 10 years, he would have inherited the trust outright and could pay off the loan at any time.
It’s also important to note that what we find in many cases is that when looking at a vacation home, people care less about the logistics than they do about what it means. They don’t care if the rooms or beds are small or the kitchen isn’t as perfect as they would want; they just want a place for the family—and many generations—to come together to laugh, to play, to make memories.
But that doesn’t mean the financial questions aren’t important. In fact that’s why fiduciaries can be so vital; we do the heavy lifting, so our clients can dream their dreams and we can drill down the details.
As we would do in any similar situation, we didn’t just suggest the intra-family loan as the only option. We also looked at bank alternatives, like traditional financing and other kinds of trust loans. We crunched the numbers, looked at all the variables, and came up with what worked best for our client.
The same answer wouldn’t apply to everyone, which is why those initial steps—learning about your values, goals, and priorities—are so crucial to establishing a long-term relationship with your fiduciary financial advisor. Many of our decisions are about money, of course, but they’ll also be considered in context of everything else happening in your life. When it comes to such things as your financial means, your time horizons, your risk parameters, taxes, family-fairness issues, and other related issues we look to you for the proper priority to get to the finish line.
Financial Conflict 3 – How can I save more for retirement?
Dear Irvin,
Confession time: I know all the advice, and I knew better. But my spouse and I didn’t put away as much for retirement as we should have, and now I feel like we’re behind. I’m in my late 50s and when I try to crunch the numbers myself, I feel like I wouldn’t be able to stop working until I’m 80 or something! I know I can’t take back time, but is there something else I can do to catch up on my retirement?
—Gerry
You can make the case that this is one of the most fundamental personal problems with lifestyles today. So many people fail to save early enough (throughout their lives when dollar-cost averaging will really make their money grow), and they’re stuck wanting to retire but not having the means to do so. They live in the moment. They live above their means. And they live for the now instead of for the future.
Many years ago a couple named Fred and Ethel came to us with just under $750,000 saved. Their joint income was more than $600,000 a year, but they overspent—on everything except their retirement accounts. Fred and Ethel came to us saying they wanted to retire at 55.
Using our advanced cash flow planning software, we showed them what comes in, what goes out, and what goes to Uncle Sam. The math didn’t add up. If they retired at 55, they would be broke by 60. Not much of a shocker.
By going back to the drawing board and having Fred and Ethel eliminate unnecessary “wants,” they started first with the basics (paying yourself first in order to save then cutting back on unnecessary expenses). That savings mentality developed into maximizing their retirement plan contributions each year and dollar-cost averaging into a joint taxable account.
Fifteen years later, our client who began with $750,000 saved to $4 million saved for retirement (after lifestyle expenses). That’s the power of saving and compound interest at work. In these cases, we can make money grow, but we need two things from our client—time and their commitment to live within their means and contribute to their investments on a regular and consistent basis. Fred and Ethel did just that and were able to reap the rewards.
Bottom line, in life, conflicts are inevitable. But the good news is that you don’t have to navigate these challenges alone. By partnering with a knowledgeable professional fiduciary, you gain a trusted advisor who can help untangle these financial dilemmas, providing clarity, guidance, and peace of mind.
With the right support, even the most daunting conflicts can be transformed into opportunities for growth, ensuring your financial journey is as smooth as possible.
Want to learn more about solving common financial conflicts? Stay tuned for Part 2!