U.S. households are in the midst of an astonishing wealth transfer: over the next 23 years, $84.4 trillion will be transferred to heirs and charities.1 In too many cases, though, estate owners will fail to talk with their heirs and get them involved in financial planning in advance of that wealth transfer. Let’s look at why those conversations are vital, why families tend to put them off and how to stop procrastinating.
Avoiding Painful Surprises
The reading of a will can spark elation or disappointment for your heirs; far too often, unanticipated news sows division among the siblings and loved ones we leave behind. That’s why it’s critical to broach the topic of how money and property will be divided up well before your death. Having “the conversation” can be intimidating but doing so is a vital opportunity to let your adult children know what kind of windfall, if any, to expect.
Context Is Everything
Disappointing news can be easier to accept if it’s delivered with a dose of context. An in-person conversation allows parents to explain how they arrived at difficult decisions. It might make sense to leave siblings different amounts of wealth based on their different health conditions, earnings potential or life situations, for example. In-person conversations allow you to provide explanations so that, at the very least, heirs aren’t left guessing.
Once Heirs Know, They Can Prepare
Financial windfalls are more likely to be squandered if the recipient is unprepared. Letting heirs know in advance what’s coming their way can get them motivated to learn how to best manage new wealth and to begin making long-term financial plans. Finally, a very practical reason to have the inheritance conversation is that it lets you tell loved ones where key estate planning documents are located.
Why People Avoid the Conversation
Talking about inheritance means talking about money and death—two topics that most of us would rather avoid. Often adding to the apprehension are concerns that letting kids know an inheritance is in their future might sap their initiative and leave them rudderless. On the other hand, givers may fear that their plans will disappoint heirs. It’s easy to see why the talk so often gets put off to another day. After years of being avoided, the topic of inheritance may seem too emotionally charged to broach.
Practical Ways to Open Up Communication
Because there can be so much trepidation about discussing estate plans, it’s wise for families to start having conversations about financial decisions early. Normalizing discussions about money can mean less drama when it’s time for the big conversation. When you’re ready to dive in, you might use a significant life milestone—a big birthday or a retirement, for example—as an excuse to raise the topic. Using news about others can be effective as well: “My friend is in the middle of a big fight with her siblings about their inheritance. Let’s talk through our own situation so you and your siblings don’t end up in the same situation.”
Preparing to Talk
While no one wants to think about their parents’ mortality, setting a date for the inheritance conversation allows adult children time to prepare mentally and emotionally, which can lead to a more productive meeting. You can choose to talk with one heir at a time if you feel that will best facilitate open discussion. Or you can assemble the whole family to be sure that you present a unified message. Parents must rely on their knowledge of family dynamics to decide which is best.
Delivering Difficult News
If you plan to leave more to one sibling than others or give more to charity than heirs might have expected, be straightforward about your reasons. Some estate owners will opt to distribute their wealth not to their children but to their grandchildren to keep the estate from being subjected to tax twice. (Such bequests are subject to the federal generation-skipping transfer tax. For 2022, the federal transfer tax exemption is $12,060,000, or $24,120,000 for married couples.2)
Another touchy area can be your choice of executor. You might choose one child to oversee the dispersal of your assets because they live closer to you or are more experienced with financial matters. If you choose to use a third party as executor, you might frame it as an act of consideration: “We didn’t want to saddle you with that responsibility.” Knowing that you’ve carefully thought through your decisions can help allay any resentments.
Bring a Neutral Party to the Meeting
It’s normal to be a bit nervous about presenting your estate plan to your grown children. A third-party professional, such as a financial planner or an estate attorney, can facilitate the conversation, explain technical matters and move the process along—they don’t have an emotional investment in the outcome, after all. Of course, your financial advisor can help heirs begin to understand the wealth they’ll inherit and how to manage it; it’s never too soon to begin the education process.
Save the Numbers for Later
It’s perfectly fine for your initial presentation to serve as an outline of what your heirs should expect. It’s not necessary to cover details such as dollar amounts, which, after all, will fluctuate over time. And explaining how your decisions reflect your family’s values can attach meaning to the inheritance of wealth, engendering in heirs a greater sense of responsibility for stewarding it wisely.
Footnotes:
The views expressed are for commentary purposes only and do not take into account any individual personal, financial, legal or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. The opinions are based on information and sources of information deemed to be reliable, but Mariner Platform Solutions does not warrant the accuracy of the information.
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