A Family Conversation About Wealth and Inheritance
Talking to your children about your finances is about more than telling them the location of your most important documents. It’s also about imparting responsibility and respect for your values regarding money.
As parents grow older, they must eventually face the challenge of talking to their adult children about wealth, inheritance and the financial implications of their mortality. Unfortunately, “many parents postpone [the conversation] because they think they have time,” says Dr. Eileen Gallo, a Los Angeles psychotherapist who counsels families about the emotional aspects of wealth.
That can be a mistake. Communicating openly with your kids won’t solve every problem, but it can reduce family conflict and provide you with more options for empowering your children to act on your behalf, should it become necessary. Open communication can also help prepare your loved ones to become responsible inheritors.
A Family Meeting of the Minds
For many parents, the key question is how and when to begin that conversation. Many people assume that family meetings are important only for the very wealthy. But experts say that regardless of your net worth, an annual family meeting can help you create a comfortable forum for discussing your values, priorities and goals related to managing money — and important details about your wishes for the disposition of your estate.
Family meetings also enable parents to clarify their intentions related to any possible misunderstandings that might arise from disproportionate splits of an estate. This is especially important when remarriages and second families are involved, or when parents want to name charities or unknown entities as beneficiaries. “If there are no surprises, you may avert a legal battle later,” says Steve Hartnett, Associate Director of Education at the American Academy of Estate Planning Attorneys in San Diego, Calif.
Conversation Points
Begin your family meeting with a discussion of the basics. You should identify your executor and specify where you keep your will and other important documents and account statements. Although it’s not important that everyone know all the details of your financial situation, it is imperative to make at least one family member aware of the location of important records.
Some of the specific issues you may wish to discuss in this regard include the following:
· Have you granted someone a durable power of attorney and a power of attorney for health care? Where are the documents located?
· Do you have a safe deposit box? Where is it located, and where is the key and the list of contents?
· Does your retirement program have a death benefit for survivors?
· Have you established any trusts, and for what purpose?
· How have you arranged to handle any applicable estate taxes?
· Have you shared the names and contact information of your financial, tax and legal advisors with your children?
· Have you discussed the plan for what happens if you got into legal trouble, a federal Department of Justice or state investigation or were incarcerated?
A Trusted Strategy
When talking to your adult children about wealth, “it is important to provide a very practical financial education on managing your assets,” advises estate planning attorney Jon Gallo, who with Dr. Eileen Gallo, his wife, co-authored The Financially Intelligent Parent(to be released in June 2005). One approach is to introduce your children to a trusted advisor who can help them understand their financial options and encourage them to make choices that support their long-term interests, such as retirement planning or education planning for their own children.
Many parents use trusts to transfer assets to their children or grandchildren. A trust may be used temporarily to hold and manage assets until a young adult matures. Other parents choose to set up a trust for life to protect their children’s assets from creditors, divorce settlements and estate taxes. It’s important to talk about the trust with one’s beneficiaries and explain its purpose.
Wealth and Values
One option for parents seeking influence is an incentive trust, which enables parents to establish terms governing the distribution of funds. An incentive trust can provide financial motivation for adult children to excel and to meet certain goals. Still, Gallo cautions that there can be “a fine line between adding too many constraints and providing positive incentives for the beneficiary to be a productive member of society.”
Regardless of how you plan to transfer your wealth, raising children who can identify their own passions and interests in life is the best way to ensure responsible money habits. “Trusts and inheritance decisions should provide enough money to encourage productivity, but not so much money that your adult children do nothing,” says Hartnett.
Work with your attorney and your financial advisor to determine what funding vehicles are appropriate for your goals.
Provided by courtesy of Aaron Jousan Johnson, Managing Director with JCAP Group in Darien, CT.
Our firm does not render legal, accounting or federal or state tax advice. Please consult your CPA or attorney on such matters.
The accuracy and completeness of this material are not guaranteed. The opinions expressed are those of the author(s) and are not necessarily those of JCAP Group, J. Capital, or its affiliates. The material is distributed solely for informational purposes with no fee and is not a solicitation of an offer to buy any security or instrument or to participate in any trading strategy.
