Leila Francis is BMO Wealth Management’s senior fiduciary adviser. As a former trust and estate lawyer, she works closely with families and clients to help develop thorough estate plans that are aligned with their current and future needs.
Tell us about some of the challenges faced by high-net-worth people going through a divorce and potentially dealing with a blended family.
Family structures have changed significantly in recent years, and it is not uncommon for people to enter a second or even third marriage as blended families become more commonplace. Some people may also decide not to marry their current partner but instead to live in a common-law relationship. If one or both partners have children, the family dynamic may become quite complicated, so it is important to have a proper estate plan in place.
Complicated how?
We encounter so many divorce situations — and with people of significant wealth, such as $30 million to more than $100 million, it’s even more complicated. So often, people get remarried, and the children from a first marriage get so upset, especially if it’s a younger spouse: “What will happen to our inheritance?”
Those situations are common. In divorces, you lose a big portion of what you’ve got, so it’s common for the kids to think, “She, or he, is going to take it all!” And if the ex gets remarried, you have a whole new situation.
What steps do you recommend?
People are very naive and trusting. The key is to have an estate plan in place. And we do a lot of family meetings. We just did an estate plan for a family in Naples, where the kids are in their 30s, and they don’t know how much the family has. It’s important to bring the adult children into the process and show them the value of money. I met with a billionaire in Miami who told me: “My kids know what it’s like to be poor, but my grandkids have no idea. I’m terrified that they’ll be like: ‘Why do I have to work? I have limos pick me up.’ ”
If there is no estate plan in place, the intestacy laws of the state one resides in will dictate how their assets without a joint tenant or beneficiary designation will be distributed upon their death. In most states, that means that the new spouse will receive half of the estate outright, and the children will receive the other half — again, outright. This is often not the desired result in a second marriage/blended-family situation.
What do you advise when it comes to blended families?
A blended-family context can raise unique estate-planning challenges. It is essential to have candid discussions with loved ones in advance to ensure a noncontentious estate administration. With some new blended families, they give the money outright to the new spouse rather than giving it through a trust. Then the new spouse may give it to new husband or give it to their kids. It’s important to put a bank or third party in charge of the trust. When a bank is trustee of the trust, they have a fiduciary duty to the current beneficiaries and the remainder beneficiaries. That way, you don’t have the kids wringing their hands, “Oh, my God, she went shopping again!”
Put some amount into a trust for the new spouse and some money to kids at your death. Otherwise, the kids may have to wait 40 years to get the money. This year, the lifetime estate and gift tax exemption rose to $12.92 million.
What about when your blended family crosses borders or you have international assets?
Different countries have different laws. It’s important to have a list of assets, as well as a list of passwords somewhere. Sometimes, they can be hard to track down. We’ve had to look through file cabinets and once found an envelope attached to a will.
Citi survey: Family offices reassessing asset allocations, professionalizing investment functions
By MARCUS BARAM
Amid concerns about inflation, interest rate increases and U.S.-China relations, family offices have reassessed their allocation of assets in recent years — moving more money into fixed income and private equity and taking money out of the public markets.
About half of the 268 family office clients surveyed by Citi Private Bank for its annual Global Family Office Survey Insights report said they increased fixed-income allocations, 38% increased private equity allocations, and 38% cut their public equity allocations.
Overall, family offices were optimistic about the year ahead, with two-thirds of respondents expecting market-to-market portfolio increases and nearly all of them looking for positive portfolio returns over the next 12 months.
Among other findings from the report:
- Direct investments: 80% of family offices engaged in direct investments, while 66% said they were “seeking opportunistic deals based on attractive valuations,” and 38% said they had paused new direct investments due to economic uncertainty.
- The investment function is professionalizing fastest within family offices: 64% have implemented investment committees and investment policy statements (51%) but are slower when it comes to professionalizing other activities, such as governing boards (48%) and leadership succession plans (31%). Only 32% have a family constitution, 28% have a family leadership succession plan, and 21% have a next-gen education program. “The latter two are the most concerning,” Citi said in the report.
- Looking forward, the family offices surveyed were most bullish on global developed investment-grade fixed income, private credit, cash and direct private equity and most bearish on crypto assets, real estate and global developed investment high-yield income.
