The $5 million gift tax exemption has really pushed the wealth transfer issue to the forefront of family discussions, says Patty Chantler, tax partner, head of estate and trust group at Sensiba San Filippo, but the issue is a delicate one requiring careful handling.
The Silicon Valley accounting firm has been based in the Bay Area since 1980, and the bulk of its customers have closely-held businesses, “so the biggest dilemma we have is: how do you transfer that business interest and wealth?” explains Chantler. Before the expanded gift tax exemption, “we couldn’t really go to the next step and make that substantial gift,” she says, but now it’s “let’s get this transferred now.”
This is a good thing, in her view, as she is a proponent of discussing wealth transfer before one of the wealth holders passes away. “Once the matriarchs go – all those little issues come out at that point,” she says.
And this can be from unexpected sources of discontent within a family. For example, something she’s seen is that one sibling who may have been quiet while a parent was still alive suddenly starts talking, or that a sibling’s spouse suddenly urges him or her to speak up over grudges that have lasted a lifetime.
There’s a chaotic element to wealth transfer too. With money, in most cases, comes power. The Greek origins for plutocracy link the terms “money” and “authority”, and in families it’s often the case that the sources of wealth become centers of power. As money is passed around, questions over power inevitably arise and this raises the issue of who the advisor actually works for.
“You can only have one boss,” says Chantler, and at the point of passing on money the dynamics of power are suddenly thrown up in the air. Because of all of this, “the more they talk about it before, the better things are in the end.”
However, there’s resistance to this discussion. For a start, parents are always concerned about outliving their own assets, and secondly, people don’t often like to think about dying. It often takes something to urge them into action.
“When one of them [the matriarch/patriarch] does pass, they really start thinking about transferring family wealth,” says Chantler.
And when they get to this point: “Parents always want to be fair – they want children to get along after they’re gone, but they also want to protect legacy assets.”