Importance of disclosure

Many families refrain from sharing sensitive information, such as matters relating to inheritance, because they don’t want to make the vacation home or wealth in general a source of conflict or primary focus, explained Michael Liersch, director of behavioral finance for Merrill Lynch Wealth Management.

“Often, the patriarch or matriarch, or whoever generated the wealth, will delay that conversation until they feel that they need to have it,” Liersch said.

This point ties in with a number of survey findings from US Trust earlier this year, such as that few wealthy parents believe their children will be mature enough to handle their wealth before the age of 25. At the same time, only 39 per cent of parents whose children are aged 25 and above have fully disclosed their wealth to children, while 53 per cent have disclosed “just a little” and 8 per cent have disclosed nothing at all.

Allred emphasized the importance for families to talk about the concept of shared resources and values surrounding issues such as sustaining wealth and maintaining assets.

She illustrated the risk of holding back important information by explaining how one with family she worked with previously, the parents dramatically underplayed the assets the children would receive with their inheritance, including the vacation home, telling them they shouldn't expect much. When one of the parents died suddenly, the children were left “millions of dollars” in trusts, which was hard for these heirs to come to terms with.

“Those surprises without any experience of what it might be like to have that type of wealth - and how to sustain and manage it - can lead to unintended consequences in terms of financial and relationship outcomes,” Allred said.

Meanwhile, one of the more practical challenges relates to the funding and upkeep of the home, as maintenance costs can be incredibly expensive - particularly for those located in riskier areas such as by the sea.

“It’s challenging to maintain these family homes across generations. One of the biggest rules to lay out is who’s going to contribute to the maintenance of the house,” Liersch said.

Indeed, in some cases the owners will leave a trust to help the next gen fund building work, for example – but this will likely dwindle over time and eventually run out.

Then there is the issue of sibling rivalry, and fairness and equality. For instance, one family might live in driving distance to the house and so is able to use it a lot, while other family members on the other side of the country only use it one or two weeks a year.

“Developing a common set of rules can be a huge way to overcome behavioral challenges that can lead to conflict in families,” Allred said.

Liersch added that he and Allred have worked together with families in reframing the idea of “it’s never too late” to “it’s never too early” – highlighting the case that engaging on issues such as those related to the family vacation home is a way of creating family unity.