Are Your Children Prepared to Inherit Your Wealth?
by Brenda Benning and Heather Broyles
You have worked hard to accumulate your wealth and establish an estate plan to successfully transfer your wealth to the next generation. The next step is to talk with the next generation and ensure your children understand your plans and the legacy you want to leave.
Many people struggle with knowing when to talk to their children. Some are fearful that too much information about a potential inheritance will lead to a dependence on it and discourage their children from working hard and being independent. However, not giving enough information can lead to future post-death misunderstandings and negative feelings.
Communication is one of the most important parts of your wealth transfer strategy. Talking to your children about your plan may not be an easy conversation, but it is a necessary one. However, the conversation should happen well before a crisis. Set a time and place and let your children know you would like to discuss finances. It may require a series of conversations that ideally should include all your children.
Here are key items to discuss with your children:
- The Fundamentals: Where can your children find all the important documents? Where is your will? Do you have trusts in place? Who are your attorney, financial advisor, and tax advisor, and how can they contact them? Make sure your children know where they can locate this and other information such as life insurance policies, titles, and bank and credit card account information, including usernames and passwords.
- The What: Discuss your plans in as much detail as you want. Are you leaving everything equally to the kids? If not, make sure they know that and why. Are you leaving a significant amount to charity? No matter what your wishes are, communication is vital to setting expectations and avoiding negative feelings in the future. Encourage them to ask questions so they can better understand your intentions.
- The Who: Who will handle the finances? One of your children, another family member, or an independent third party? This is one of the most important parts of the discussion. You need to decide who will manage the will and the estate finances. Explain your reasoning for choosing that person.
Having a financial conversation with your children will be easier if you have historically been open with your children about money issues. It is never too early to teach your children about money. One key is to be age appropriate when answering your children’s questions about money. Start with talking to them about saving. Give them opportunities to save for a specific purchase or participate in the household budgeting process. Let your children be a part of the process of making sacrifices to meet budgeting goals. As they get older, help them establish a bank or investment account and teach them the process of saving and investing for short-term and long-term goals. Lead by example.
Educating your children to successfully manage their finances will keep the lines of communication open and demonstrate to them that talking about money is not a taboo subject. Doing so can help the estate plan conversation go more smoothly.
Source: BKD Private Client Services