On Children’s Inheritance

Posted on October 29, 2014 by Dr. David Edward Marcinko MBA MEd CMP™

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In Estate Planning

By Rick Kahler MS CFP®  http://www.KahlerFinancial.com

Rick Kahler MS CFPEstate planning can be one of the most emotionally difficult aspects of financial planning. One often-overlooked aspect of estate planning is talking with your heirs about your legacy plans.

While most of us probably accept in theory that these conversations are important, actually carrying them out can be terribly difficult.

Suggestions

Here are a few suggestions that may help.

  1. Communicate your values about money in a larger context with both words and behavior. Our estate plans often reflect lifelong values such as a commitment to charitable giving or a wish to provide first for our families. If children are familiar with your values, chances are they will have a good idea of what to expect from your estate.
  2. Evaluate your children’s money skills. Just because kids grow up in the same family doesn’t mean they will have the same knowledge and attitudes about money. Especially if children will inherit significant amounts, conversations about estate planning can become part of larger conversations designed to help teach them how to manage and become comfortable with their legacies.
  3. If your estate plan does not treat children “equally,” for whatever reasons, it’s best to share that information well in advance and to communicate it privately to each child. There are many reasons why treating children differently in an estate plan can be the fairest thing to do, but that doesn’t mean it’s wise to let them learn the specifics when a will is read. If parents and individual children can discuss these provisions and the reasons for them ahead of time, there is less likelihood of conflict between siblings after the parents are gone.
  4. Don’t allow children to assume they are inheriting more than is the case. If most of your estate will go to charity, don’t keep it a secret. Not telling the kids may avoid conflict now, but it will sow seeds for deeper conflict and resentment after your death.
  5. Prepare children for large or unexpected inheritances. I’ve worked with heirs who were stunned to receive legacies much larger than their parents’ lifestyles had led them to expect. If you have a substantial net worth that’s “below the radar,” perhaps in the form of land or business ownership, your children may be totally unprepared for what they will inherit. Find ways to help them learn more about both the financial and the emotional aspects of managing inherited wealth. You might also consider options, such as giving more to the children during their lifetime, to help reduce the impact of a sudden inheritance.
  6. Acknowledge your own fears. Although it is seldom expressed, perhaps the strongest reason for not discussing estate plans with family members is fear. It’s natural for parents to be afraid that children will be angry or disappointed, will build too much on their expectations for an inheritance, or will be resentful of other heirs.

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Currency

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Communications

Talking to family members about estate planning and legacies can be difficult and even painful. Those discussions, however, will almost certainly be less painful in the long run than the stories children may make up about your decisions after you are gone.

Role of Planners and Coaches

Financial planners and financial coaches can play an important role that goes beyond providing financial advice. They may also be helpful in facilitating the family conversations. In especially difficult circumstances, the help of a financial therapist can also be invaluable.

Assessment

Using the available resources to help you discuss your wishes with family members can be an important aspect of estate planning. Having those difficult conversations is one way to enhance the legacy you want to pass on to your family.

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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2 Responses

  1. Rick Kahler MS CFP®, on March 2, 2015 at 3:05 AM said:

    On Kid’s and Money

    Many parents don’t talk to their kids about money. As a financial planner, I’m an exception to that norm. My kids would be quick to tell you I talk to them about money a lot.

    Here are a few of the things I want my kids to know about money. Many of them are concepts from my good friend, Richard Wagner, a CFP from Denver.

    1. Money is a social agreement. In its simplest form, money is whatever you and I agree that it is. It can be almost anything portable: coins, sugar, tobacco, sheep, or dolphins’ teeth. In our modern world, money is what our federal government says it is: metal coins and paper bills.

    2. Money isn’t good or bad, it just is. I’ve asked my kids to look at a paper bill and tell me what is good or bad about it. Always, anything good or bad about money is a projection on what can be done with the bill, not the bill itself. A paper bill doesn’t have much utility, power, or value in its physical form.

    3. Money isn’t found in nature, and money skills don’t come naturally. In order to succeed in today’s world, you need to learn at least two competencies: how to operate a smart phone and basic financial skills. Why? Because money touches everything we do and every aspect of our lives.

    4. There are not a lot of rich folks walking around. Only about one out of every 100 people has $2,000,000 or more in net worth. While that sounds like a lot of money, it really isn’t when we consider it will safely provide an annual lifetime income of about $60,000.

    5. Most people who accumulate wealth are frugal. They live on less than they earn—often much less. They comparison shop, buy used goods without shame, and take a lot of satisfaction in saving and investing. Most millionaires don’t wear designer clothes, drive luxury cars, or live in mansions. Most millionaires wear jeans, drive used cars, and live in middle-class neighborhoods.

    6. It’s not what you earn, it’s what you keep. Budgeting is important, but it doesn’t have to be difficult. Here is the way most wealthy people budget: out of every dollar they earn, they first set aside enough to pay their income taxes, fully fund their retirement and college savings plans, replenish their emergency savings account, and give to charity. Then they blow the rest. This usually means they live on 30 to 50 cents out of every dollar.

    7. Talking about money is hard, especially when it’s about my money. Society says it isn’t polite to ask people how much they make or what they are worth. Most kids don’t even know what their parents make or what their net worth is, because very few families talk about these topics. When I first told my kids my monthly income, they were initially aghast. I then started ticking off the monthly expenses, which were equally shocking to them.

    8. When it comes to college funding, research says kids who pay their own college expenses do better than kids whose parents pay some or all of the tab. My kids accept the research, though they do wonder if they might be the exceptions to the rule.

    While I’m pleased to be able to talk comfortably with my kids about money, I don’t know whether all the talk serves to teach them these important concepts. No matter how much I say, I need to remember one thing: most of what kids learn about money comes from how they see us use it.

    Rick Kahler MS CFP®

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