Valerie Galinskaya is the managing director and head of the Merrill Center for Family Wealth, a group within Merrill Private Wealth Management. Previously, she was a project leader at the Boston Consulting Group. She recently co-wrote a report, “Pulling Back the Curtain,” that surveyed more than 270 individuals from families with assets of $50 million or more about money, relationships and decision-making.
In the survey, you focused on three areas: communication, decision-making and giving. What feedback from survey respondents stood out to you?
During the pandemic, more families were having conversations about wealth. We were really curious about how they were initiating these conversations, and I was struck by how enigmatic this topic is for so many people. About 78% of people were having spontaneous conversations about wealth; 33% noted they were having more conversations during the pandemic; and a quarter of them regretted having such conversations, with some saying it caused more anxiety.
Tell me about the "dimmer switch" approach to talking about wealth with your family.
In having these conversations, the intention may be good, but this is still really, really hard to do. People think of it as a binary thing — kind of like a light switch: You're either talking about it or you're not. You need a process around it so that it’s more like a dimmer switch with a series of conversations over a few years, slowly turning on the light switch of disclosure when it comes to purpose and principles, structures and amounts.
How do you initiate a values conversation with a partner or family member?
Here’s a quick example: A husband and wife, first-gen wealth creators who really avoided talking about wealth with their three kids, the eldest of whom is 24. They were terrified that this will completely mess up their kids. And their eldest mentioned that he wants to propose to his girlfriend — and, all of a sudden, they have to deal with this topic they've been pushing down the road. They didn’t know where to start.
The first thing: What is the purpose of your wealth? We use an exercise, with a tool called value cards, that defines the family’s shared values. It’s meant to empower their family members, because we want them to have skin in the game. As for structure, we met with them and their private wealth adviser from the perspective of the kids. What are the structures that are relevant? We put it into four buckets: saving, spending, anything for future generations such as direct gifts to the kids, and philanthropic.
Then, we had a meeting with mom, dad and the kids. We first started talking about purpose; the next step is that structure and talk that through with them. And the kids are able to ask questions. We set them up for their son getting engaged, setting up trusts. The hard part for them was to get past the legalese — what does it mean to be a trustee, what does it mean to be a beneficiary?
And what’s the best way to develop skills and processes for shared decision-making?
Almost half of people (48%) said making decisions is shared among two or more generations. And one out of five (20%) said their family had limited skills to manage the shared assets. In some families, there are undefined expectations about roles.
Everyone is concerned about trust and estate planning, but there are more qualitative and softer issues that are having outsize impact. Going to this idea of what is the purpose of your wealth and what values resonate most with you. It’s key to have that conversation — if this is what success means to you, how are we translating that into the structures that exist?
One finding that was really surprising: 39% told us that they give recurring gifting to their adult children. What does that mean? A monthly allowance, helping out with rent? Without any guidelines, that’s a recipe for challenges such as financial dependence and conflict in families.
It can be controlled without any conversation. Sometimes when parents overfunction, kids underfunction.
Another example: We worked with a divorced couple with three young adult children, two daughters and a son. One had graduated from college, lost his job and was living in NYC and renting and facing some personal challenges. The mom said she would help and was paying the rent without any boundaries. The son was feeling resentful because she was bringing it up in conversation, and his sisters were upset because they were making it on their own.
It’s important for them to stop and pause and see what's not working, what's important to them and how are they contributing to the problem. We had individual conversations with the kids and then all had a meeting with the five of them. They created a timeline when that particular rent would stop; the parents would put money aside for a career coach and money to purchase a first home.
What about when the kids start working in the family business?
If you have one or more family members in the family business, that can affect gifting decisions and can aggravate fairness versus equality. It's not about fairness, it's about the perception of fairness. During your lifetime, how are you planning to gift to your children? About 56% said they would gift equally, others said based on age or need.
We seek to provide actionable insights to help families define what is important for them and to navigate wealth. It’s really one of the last taboos — talking about wealth. Vision without execution is hallucination, like that Thomas Edison quote. How can we help empower families to define for them what is most important and how to make effective decisions.