Baby Boomers: Inheritance Conversations With Your Children

1/2024

Not talking to your adult children about their inheritance comes at a cost. Do what you can to manage expectations for adult children as they forge their financial plans. Knowing their general inheritance situation can change their decision-making process and lead to better outcomes. These are practical matters of allocating resources for things like housing, retirement, 529 plans, and more.

When children don’t understand your inheritance intentions, it can result in arguments and legal battles among siblings and other heirs after you’re gone. The solution is a mature discussion with your inheritors, sharing details of your estate plan relevant to your child. You can withhold actual numbers by a range, such as enough for a home down payment. That way, you may provide a sense of magnitude without committing to exact amounts.

The Great Wealth Transfer

According to the Federal Reserve, the baby boomers are the wealthiest generation in US history. Baby boomers hold 70 percent of disposable income in the US and spend over $548 billion annually.

Forbes cites research stating that as much as $84 trillion may change hands by 2045. Much of the wealth is from high net-worth baby boomers. Millennials will control five times as much wealth in 2030 as they do today. Are they prepared for responsible stewardship?

Many who currently have substantial wealth have concerns that if their children know the extent of their wealth, it will reduce their motivation for productivity and growing into responsible citizens. Most parents prefer their children learn to grow their success independent of their parent’s wealth.

However, wealth is relative, and many parents also fear losing their ability to cover retirement, medical expenses, and long-term care. They want to maintain their quality of life while protecting their legacy. Because of this uncertainty, generally managing the expectations of their children’s future inheritance is better than providing exact amounts. After all, things always have the potential to change.

Failure to Prepare

Failing to prepare children for what they may inherit can hinder their ability to handle money wisely. Many suddenly feel separated from their friends, isolated, or even confused about relationships.

Others may be wasteful and spend their newfound money recklessly. Those who inherit even a modest amount can be just as imprudent without guidance. It’s all too common for some inheritors to splurge on expensive items, lavish vacations, and fast living.

The Conversation

Experts agree it’s important to talk to children about money and wealth during their adult years. It can help them learn how to manage money and live beneath their means as a lifestyle habit.

You might start conversations by discussing values, the opportunities money can provide, and their hopes of what they want to accomplish. For younger children, you may consider providing a modest sum of money and teaching them how to save, invest, and spend wisely. You may wish to demonstrate the importance of supporting charities, too.

Of course, one of the most effective strategies to teach children about values, spending, and investing money is by example. Parents must use their money in a way that reinforces their values.

One way to foster a positive relationship within the family is to purchase a vacation home. There, you can have everyone gather for summers, holidays, or annual family gatherings. Other techniques involve permitting children to choose charities to support and provide donations. If your children see you living your values, they will likely adopt similar values.

Estate Planning

Talking to your children about inheritance is an integral part of estate planning. Being transparent, fair, and open to their emotions can help ensure a smooth transition of your assets to the next generation. Keep a few things in mind during discussions:

Timing is Important

Have these conversations when children are mature enough to understand the implications of inheritance. Don’t create unnecessary anxiety or confusion by starting the conversation too early.

Be Transparent

Be clear about your estate intentions and plans without getting too detailed about the numbers. Being open about your goals and hopes for them can help avoid future conflicts. Not providing exact numbers keeps your estate planning flexible.

Consider Fairness

Consider what is fair and equitable when dividing your assets among children. Each child does not necessarily need to have an equal amount. Consider factors such as their financial situations, relationships with you, and levels of need.

Address Emotions

Inheritance can be an emotional topic for everyone. Acknowledge and address any feelings of anxiety, guilt, or resentment that may arise during the conversations.

How an Estate Planning Attorney Can Help

There are several ways an estate planning attorney can help when organizing your children’s inheritance, including:

• Legal and Tax Implications
  Estate planning attorneys understand the current legal and tax implications of inheritance. Your lawyer can help you navigate complex laws and regulations, ensuring your assets’ distributions are most efficient and tax effective.
• Drafting Legal Documents
  Estate planning attorneys can draft wills, trusts, powers of attorney, and more to help you plan for your children’s inheritance. Tailoring these documents to your specific needs ensures your assets are distributed according to your wishes.
• Reviewing and Updating Documents
  Estate planning attorneys can review your existing planning documents to ensure they are up-to-date and reflect your current wishes. They may also recommend changes based on shifts in your family or financial circumstances. Informing your adult children of substantial changes is crucial in your inheritance conversations.
• Guiding Asset Protection
  Estate planning attorneys can guide strategies to protect your assets from potential creditors or legal claims. They can also help plan for long-term care and other future expenses to keep the bulk of your estate intact for your children.
• Fostering Communication
  Estate planning attorneys can facilitate communication between you and your children about your estate planning decisions. These discussions can help prevent future arguments.

While an estate planning attorney can help ensure your children’s inheritance is organized and distributed effectively, parents also play a key role. Parents must educate their children regarding the value of money, what it can and can’t do for them, and have open conversations about their future inheritance. Including your estate planning attorney in some of the more crucial conversations with your children about their inheritance can be invaluable.