What You Should Tell Your Heirs While You're Around
The case for spelling out inheritance plans before you're gone
(This article appeared previously on MarketWatch.com.)Many Americans find out about their inheritance only after their parents have died. But as the country gears up for the greatest wealth transfer in U.S. history, experts are urging more transparency around the often-taboo topic of who gets what.
More than $30 trillion will change hands by 2050, according to various estimates of the generational wealth transfer. But nearly half of benefactors have not discussed their inheritance plans with their children, according to a recent survey of high net worth and affluent investors by UBS Wealth Management Americas.
Silence over this important topic can mean problems down the line — and not just for the wealthy. Heirs deal with all sorts of headaches when a loved one’s finances aren’t in order, leaving them to scrounge around for statements to settle accounts.
Keep the Peace with Transparency
More devastating are the disagreements that can divide heirs who had been kept in the dark: the fights that can erupt between siblings over cherished possessions that weren’t clearly allocated or the resentment that can arise when Mom and Dad leave one child more than another, but fail to explain why.
Thomas Rogerson, senior managing director and family wealth strategist at Wilmington Trust, said financial firms are increasingly stepping in to help their clients navigate family dynamics. They’ve expanded beyond preparing trusts as an estate planning vehicle into fostering trust among family members, advertising their expertise in “softer” skills such as facilitating communication. Services include coordinating and moderating family meetings where goals for wealth and inheritance can be discussed.
While these services are often aimed at high net worth families with many millions to pass to the next generation, families across the asset spectrum struggle with similar challenges communicating, experts say. “For most people, it’s just hard to talk about death and mortality,” said Marlene Stum, professor of family social science at the University of Minnesota. Add money into the mix, and it’s understandable why people shy away.
Sharing is Caring
Yet Rogerson and other experts say the goal for many parents should be to share their financial situation with their adult children. This means the older generation should give the younger generation some concrete sense of their net worth — a prospect that makes some families squeamish even outside the context of death and inheritance.
At a minimum, adult children should be aware of any resources their parents have available to pay for long-term care needs that could arise, said Jody Gastfriend, vice president of senior care for Care.com, which provides workplace solutions for child, pet and elder care. Grown children can’t make a care plan for their aging parents if they don’t know what money is available to pay for it, Gastfriend said. And by the time parents need the care, they may be too frail to communicate about their finances.
Beyond long-term care considerations, parents who share details of their finances with their grown children have a chance to communicate their hopes for their legacy, experts say. This goes beyond money to a discussion of the parents’ values, and their wish that their children honor the family legacy, perhaps through a meaningful use of their inheritance.
Parents should also tell their children how they’re planning to divvy up their assets. Explaining the thinking behind the decisions is equally important, Stum said.
Perceived slights “just stick with people forever,” she said. For example, if the reason wasn’t explained to her, a daughter will always wonder why her parents left her brother, say, the beach house, and this could sour the relationship between the siblings.
Those who aren’t planning to pass along their wealth should certainly let their children know, experts say. The singer Sting has gone public with his plans not to leave his fortune to his children, and since he has discussed his plans in the media, presumably he’s done so with his heirs as well.
Timing it Right
Rogerson said parents often ask when they should tell their adult children about their money. His answer? “When they’re ready.” He says parents should look for signs that their children are confident and competent.
It’s best for parents to have the inheritance conversation, or series of conversations, while they are still of sound mind and body. It may seem obvious, but those who become infirm before they discuss their wishes will have less chance of having their wishes honored.
This holds true even if there’s a solid estate plan in place, experts say. “You can have the best legal and tax advisers in the world” and still lose money over generations through a lack of communication and trust, said Roy Williams, president and founder of the Williams Group, a San Clemente, Calif.-based organization that coaches high net worth families through generational wealth transfers.
Ask Who Wants What, But Don't Promise
Parents can always ask for their children’s input on what they should do with their money and possessions. Maybe one child would be thrilled to inherit the mountain cottage rather than an investment portfolio worth twice as much, but such thoughts won’t be clear until the parties talk it out.
However, before seeking any input from their offspring, parents should lay the ground rules for the discussion, said Bradley J. Frigon, an elder law attorney in Denver, Colo., and president of the National Academy of Elder Law Attorneys. That means making it clear that the ultimate decision rests with the older generation. “This is not a democracy, where everyone gets to vote,” Frigon tells his clients. “This is a dictatorship.”
While transparency is the general rule of thumb when it comes to issues around inheritance, experts caution that not every family should be having a frank conversation. In some families, there isn’t a baseline of trust or communication on which to build. And in some cases, even raising a delicate topic could lead to litigation, Frigon said.
Those who tackle the discussion shouldn’t necessarily expect smooth sailing all the way. “There’s conflicts in most families,” Stum said, and it’s okay for open, honest communication to bring some conflict to light.