Family Wealth: Talking to Your Children About Inheritance

Entrusting family members with receiving an inheritance is more than just getting a hold of assets or a check in the mail. It is about understanding how to steward the hard-earned wealth that you and your spouse spent your lives building.

You are not alone if you are uncomfortable discussing your finances with your children or grandchildren. For many parents, talking to their children about their future inheritance is a challenging topic to explore. Did you know that only about one-third of adults have a prepared will, and about 40% with investable assets of $1 million or more never discuss their estate plans with their children? This communication breakdown is correlated to the fact that 90% of the time, inherited wealth is entirely squandered by the third generation, and 70% of the time, it is gone by the second. These troubling statistics lead financial professionals to believe that talking to children about their inheritance may help reverse this downward trend.

Why don’t parents want to talk to their children about estate planning and their inheritance?

Studies indicate that there are a few reasons a parent does not want their children to know how much money they have and how much they will get.

Entitlement

• The child knows they will one day inherit a significant amount of money, and due to this they may feel entitled to simply receive it without putting in any effort to maintain it.

Motivation

• Knowing that one day they will come into a significant amount of money could affect their motivation to work hard and succeed on their merit. Anderson Copper, a CNN journalist and son of multi-millionaire Gloria Vanderbilt, never received a trust fund from his mother. Instead, he generated his own wealth. He is quoted as saying, “From the time I was growing up, if I felt that there was some pot of gold waiting for me, I don’t know that I would have been so motivated.”

The value of a dollar

• Children that grow up with money available, or those that may be aware that they will get a large sum in the future, could focus on the material things they will buy or the fancy vacations they will one day take. Parents want children to understand the value of a dollar and that generating wealth is difficult. The money was hard-earned, and being financially responsible and controlling frivolous spending, for example, is an essential life skill that can be learned.

Wealth management

• Wealth management is a long-term responsibility that everyone should practice. Those who learn to manage wealth efficiently tend to live financially confident lives.

Lack of gratitude

• In Shakespeare's play King Lear," the king says about his daughter, "How sharper than a serpent's tooth it is to have a thankless child." Studies have indicated that children that are grateful for the abundance in their lives and good fortune that comes their way are not only happier but more intent on the preservation and stewarding of the wealth that is passed down to them, as well as sharing similar values to those of their parents or grandparents in terms of wealth management.

That is a compelling list of why parents may be concerned about discussing their finances and inheritance with their children; however, discussing your children’s future inheritance with them has benefits.

Why is it important to talk to your children about getting an inheritance?

First, as mentioned above, the fact that most parents don’t talk to their children about their finances, and the statistics around wealth being lost so quickly should be a significant red flag. You don’t necessarily have to tell them the exact amount of the inheritance they will get; however, letting them know that there is an inheritance in their future can allow you to open the door toward teaching financial responsibility, advanced money management skills, among other characteristics like values and the dangers of frivolous spending. Adult children of baby boomers are estimated to inherit around $12 trillion and pass down $30 trillion to their children.

At what age should you consider scheduling a meeting with your financial professional, yourself, and your children to discuss estate planning and inheritance?

Even in their late teens, twenties, and thirties, children can benefit from understanding the emotionally and financially complex world of financial planning regarding the structure, details, and management of an estate plan and the passing down of an inheritance. Being prepared can help to mitigate problems, challenges, and risks that could appear later on.

What are some ways that parents can work to communicate effectively with their children?

Asking questions

Asking pertinent questions will help you to create a strategy and design a big-picture blueprint for your children to learn about where the inheritance came from, how it has been managed, and the importance of continuing to steward the wealth, including:

Parent questions

• How much will be inherited by the children?
• Are the children financially responsible in their own lives currently?
• Will this money affect their lifestyle?

Children’s questions

• Are Mom and Dad’s financials ok?
• Will they be open about their financials with us?
• Can a financial professional help us get a better understanding of our situation?

Transparent communication

You want to be open and honest about your finances. Doing so can help to mitigate obstacles that could appear later on. Transparent communication helps to build trust when discussing:

• Which accounts and assets comprise the estate plan, and how to access them?
• The amount of the inheritance.
• Who are the emergency contacts, and how to reach them?
• Why is the estate plan currently structured the way it is?
• What responsibilities will be required for a smooth transition?
• Both parties express true feelings about the situation, including worries, which builds trust and can open doors for teachable moments that will inevitably arise.

Share your values with your children

What do inheritance and lifestyle mean to you? Finding areas where both parents and children have shared values will make it easier to work together to pursue the same financial aspirations.

Work together during decision-making

Sometimes difficulties with decision-making after receiving an inheritance are due to previous decisions made by earlier generations who needed to be taught how to manage wealth strategically.

Recognize where there might be a problem and troubleshoot it now, for example, a spendthrift child or grandchild

There are incidents where the parents or grandparents might feel that a beneficiary is not fiscally responsible based on how they currently live their lives, overspending on material things, maxing out credit cards, battling substance abuse issues, a lack of gratitude, and feelings of entitlement for money they didn’t earn. These are all worst-case scenarios that are real-life problems for some families. How do you deal with it?

Schedule an appointment with a financial professional

The first step is to set up a family call to discuss services, expectations, and goals. A financial professional can guide parents on how to talk with children and grandchildren about the inheritance they will receive one day and how to manage the money. They can also offer insight into the importance of maintaining generational accounts. The handful we've done so far have been a hit! This resource is a 20-minute call for you and your family – kids, grandkids, nieces, siblings, parents, in-laws, grandparents, or anyone you consider family.

The family call gives us the opportunity to meet your loved ones and introduce ourselves so they know how we can help them going forward, both in a group setting or one-on-one.

The format is flexible and customizable to your needs as well. All conversations or consultations will be kept strictly confidential. Never will we discuss anything pertaining to you without your permission.

Create a plan

With the help of a financial professional, parents and children can begin designing a strategy for long-term wealth stewardship.

It cannot be overstated how critical preparation is when it comes to the pursuit of any long-term goal or strategy. Begin this new journey by scheduling a meeting with your financial professional for you, your spouse, and the loved ones who will one day receive an inheritance.

If you would like to set up a call, please reach out to us by way of the contact information below. Please have the following information ready:

• Dates and times everyone is available
• Everyone's email addresses and contact information so that I may introduce myself.

Don't hesitate to contact me if you have any questions. Thank you for your continued business, and we look forward to building our relationship with you!