Talking to Your Children About Inheritance

It costs a lot to miss out on discussing your adult children’s inheritance with them. Managing their expectations as they make their financial plans and knowing their general inheritance situation will help them make better decisions. 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 downpayment, can provide a sense of magnitude without committing to exact amounts.

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 firm Cerulli Associates stating that as much as $84 trillion may change hands by 2045, and 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 to live a “real” life, learning to grow their success independently 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, maintaining 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. Things can change.

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 irresponsibly. Those who inherit even a modest amount can be just as irresponsible without guidance. BLB&B Financial Advisors cite, “it takes the average recipient of an inheritance just 19 days until they buy a new car!” It’s all too common for some inheritors to go further and splurge on lavish vacations and fast living.

Experts agree it’s important to talk to children about money and wealth during their adult years to help them learn how to manage money and live beneath their means as a lifestyle habit. Imprinting values, the opportunities money can provide, and their hopes of what they want to accomplish with money are good conversation starters. Providing your younger children with a modest sum of money and parental oversight can teach them how to save and invest, spend wisely, and even demonstrate the importance of supporting charities.

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 where everyone gathers 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.