A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer.\u00a0Sign up\u00a0to receive future editions, straight to your inbox.<\/p>\n
Battles over aging parents and their fortunes are becoming increasingly common in wealthy families, with some requiring cognitive assessments for those leading family businesses.<\/p>\n
While many families focus on the tax or financial components of wealth transfers, fewer are addressing the question of when an aging parent should give up control, wealth advisors and lawyers told CNBC. Waiting until a parent's cognitive decline is apparent can leave families scrambling over who controls their fortune.<\/p>\n
"Look, most of the matriarchs and patriarchs who create family wealth are strong personalities, right?" said trust and probate attorney Scott Rahn. "They've done great things, they've created this wealth, they've created dynasties. Now you're coming face to face with the reality that despite all of their accomplishments, they're human. That can just be emotionally difficult for families."<\/p>\n
Rahn said delaying a transition process can come at a steep cost. His law firm, RMO LLP, specializes in inheritance disputes among ultrawealthy families. He said these types of conflicts have become more common as families grow richer and people live longer, which comes with higher chances of a family member developing conditions like Alzheimer's disease.\u00a0<\/p>\n
Family businesses can build in legal safeguards, such as mandatory retirement ages or mental capacity evaluations, according to Rahn. But how families talk about succession can matter as much as the legal language, he said.<\/p>\n
"Whatever that mandatory retirement clause may be, it has to be part of a fulsome discussion around family wealth \u2014 what it means culturally to the family," he said.<\/p>\n
Here are four tips to make it easier for parents to pass on the reins:<\/p>\n
The biggest mistake that families make is waiting for a crisis like a stroke or a disagreement to discuss succession, according to Mallory Findley of Rockefeller Capital Management. By then, emotions are running high and sometimes trust is already broken, she said.<\/p>\n
"The better approach is to begin while everyone is capable of participating really thoughtfully \u2014 as we like to say \u2014 while they're happy and healthy and here," said Findley, the firm's head of family dynamics and financial education.<\/p>\n
She said meaningful life events, like selling the family business or a birth in the family, make for natural points to evaluate future plans.\u00a0<\/p>\n
It's easier to have these weighty conversations if the family talks regularly, said BJ Goergen Maloney, global head of J.P. Morgan Private Advisory.\u00a0<\/p>\n
"If you don't have a cadence of talking about things, even if it's a couple of times a year, it's really hard to have those conversations," she said.<\/p>\n
Families can build their muscle memory, as she puts it, with casual gatherings, Maloney added.\u00a0<\/p>\n
"People like to think of a family meeting for a very wealthy family as very formal, but a family meeting can be dinner on Sunday night," she said. "It doesn't have to be complicated. It's really about creating a place where you can talk about things and be transparent and solicit other people's opinions."<\/p>\n