Westend61 | Westend61 | Getty Images A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up to receive future issues directly to your inbox. Battles over aging parents and their fortunes are becoming increasingly common in wealthy families, and some require cognitive assessments for leading family businesses. While many families focus on the tax or financial components of wealth transfers, few address the question of when an aging parent should relinquish control, wealth advisors and attorneys told CNBC. Waiting until a parent’s cognitive decline becomes evident can cause families to fight over who controls their fortune. “Look, most of the matriarchs and patriarchs who create family wealth are strong personalities, right?” said trusts and estates attorney Scott Rahn. “They’ve done great things, they’ve created this wealth, they’ve created dynasties. Now you come face to face with the reality that, for all their accomplishments, they’re human. That can be emotionally difficult for families.” Rahn said delaying a transition process can come at a high cost. His law firm, RMO LLP, specializes in inheritance disputes between ultra-wealthy families. He said these types of conflicts have become more common as families become wealthier and people live longer, leading to greater chances of a family member developing conditions such as Alzheimer’s disease. According to Rahn, family businesses can incorporate legal safeguards, such as mandatory retirement ages or mental capacity assessments. But the way families talk about succession can matter as much as the legal language, he said. “Whatever that mandatory retirement clause is, it has to be part of a thorough discussion about the family heritage, what it means culturally to the family,” he said. Here are four tips to make it easier for parents to pass the reins:1. Talk about it sooner rather than later. The biggest mistake families make is waiting for a crisis like a stroke or disagreement to discuss succession, according to Mallory Findley of Rockefeller Capital Management. By then, emotions are running high and sometimes trust is already broken, he said. “The best approach is to start while everyone is able to participate in a very thoughtful way, as we like to say, while they’re happy and healthy and here,” said Findley, the company’s director of family dynamics and financial literacy. He said significant life events, such as the sale of the family business or the birth of a family member, are natural points for evaluating future plans. It’s easier to have these important conversations if the family talks regularly, said BJ Goergen Maloney, global head of JP Morgan Private Advisory. “If you don’t have a cadence for talking about things, even if it’s a couple times a year, it’s very difficult to have those conversations,” he said. Families can build muscle memory, as she puts it, with informal meetings, Maloney added. “People like to think that a family gathering for a very wealthy family is very formal, but a family gathering can be a Sunday night dinner,” he said. “It doesn’t have to be complicated. It’s really about creating a place where you can talk about things, be transparent and ask for other people’s opinions.” The transition must be gradual. While families should seek a health evaluation sooner rather than later if they see signs of cognitive decline or dementia in a matriarch or patriarch, the succession process should not be rushed, advisers told CNBC. Cognitive decline is often a gradual process, and the needs of older adults can change over time, said Valerie Galinskaya, director of the Merrill Center for Family Wealth. Handing over family matters shouldn’t feel like flipping a light switch, he said. For example, when a client expressed concern that her mother, who managed several properties, was no longer as smart as she used to be, Galinskaya said she framed the conversation as financial planning for the entire family. Instead of focusing on the mother’s abilities, the counselor asked how each family member viewed success over different time horizons. “We reframed it to not take the reins away, but to ask who is the appropriate individual holding the reins on the individual decisions at hand,” he said. Adult children’s efforts to reclaim control can backfire if they act too quickly or question their parents’ decisions, according to Dan Griffith, director of wealth strategy at Huntington Bank. “One of the sad scenarios I’ve seen is that there are authoritarian children who drive away their parents. When they do that, they are driving their parents into the arms of someone who could potentially take advantage of them,” he said. Get Inside Wealth delivered straight to your inbox3. Treat the wealth creator with respect. Tact is everything, according to Mark Parthemer, chief wealth strategist at Glenmede. “This individual, whatever role we’re talking about getting him out of, whether it’s driving the car, running the company or being the trustee of the trust, a lot of his identity is invested in that role, right?” said. “They’ve been the key person. They’ve been the person everyone trusts, so we have to be delicate about removing them from that role.” There are ways to make a transition feel empowering, Parthemer said, noting that one family he advised opted to “promote” the patriarch from company president to chairman of the board. “That was a real-life situation where we were trying to allow Dad to remain in a position where he felt important and needed and valued,” she said. “Although he couldn’t do multi-step business, he could have done it earlier, he was still able to attend strategic meetings and give his opinion.” Sometimes it is not possible for a parent to remain involved in the family business. Findley recommended that families in that situation discuss and recognize the other ways they contribute, which can make handing over financial control feel less like something is being taken away from them and more like a natural shift in responsibilities. “Our process is really about helping families recognize that each family member brings value beyond the financial contribution,” she said. “So for the older generation, that often looks like wisdom, family history, emotional stability, mentorship, or even just the ability to keep people in the family really connected.” Get the family on the same page. When siblings are involved, it’s rare for all of the adult children to be on the same page, according to Galinskaya. It’s common for a child to live closer to a parent and be aware of their declining health, while their siblings may be disconnected or in denial, he said. It’s important to have consensus among siblings before broaching these issues with a parent, he said. While some advisors prefer in-person meetings at family homes, Galinskaya said she prefers a neutral space like an office. He also said that virtual meetings can be surprisingly helpful. “If there’s a family member that takes up a lot of the airtime, Zoom is actually a good way,” he said. “Everyone is a rectangle.” He recommends establishing ground rules, such as not allowing spouses or partners to participate. To prepare, Galinskaya has clients fill out pre-meeting questionnaires, which are kept confidential, about their goals and concerns. Family members often admit to feeling judged for how they spend their money or resentful of how finances are used as a means of control, she said. As for meetings with older and subsequent generations, the goal is not to get everyone to agree but to clarify things, said Rick Pitcairn, Pitcairn’s chief global strategist. “In my opinion, families, successive generations of family members, don’t always have to agree with decisions, but if they understand why they were made and the person who says this is why I made this decision, they are quite accepting of those decisions,” he said. “If they don’t, they start accusing people of things they probably didn’t do, and there is mistrust and dysfunction.” Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.
