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Inheritance: Discussing Wealth Transfer to the Next Generation

by Kristen Jackson

May 2, 2024

It’s important to take an active approach in discussing wealth transfer to the next generation. There are a number of reasons why we encourage clients to communicate with their children, and we often facilitate these conversations with families in a formal meeting. Here are just three scenarios that we see most often and are good reasons to initiate these conversations.

Helping Aging Parents with Finances

Without a plan in place, the first time the next generation often gets a glimpse into their parents’ finances is when a medical or health emergency has forced the situation. Unfortunately, that is a stressful situation in and of itself for all involved. Investigating and taking over parents’ finances at that time can be overwhelming, especially when one has little background knowledge of the big picture. Also, this is never the scenario in which the parent ideally wishes for their child to learn about their finances.

Sometimes one of the biggest drivers of not sharing information with children is that parents don’t want the expectation of inheritance to influence life decisions and motivations. There are ways to engage adult children so that they know which accounts and assets exist without sharing any dollar amounts. It is also a good idea for them know who are the main points of contact for help – advisors, tax preparers, and attorneys. Knowing this basic information can be a valuable first step in providing an overview so they are more prepared to help when the time comes.

Preparing the Next Generation

Another reason to communicate with adult children is to prepare them for inheritance (or maybe a lack thereof). Money can do funny things to people, especially when it’s unexpected and not self-made. We see a lot of success with families that engage the next generation either directly or through their advisor. Sometimes gifting money over time to enable hands-on experience in working with an advisor and managing investments is a great case study for parents to observe how the next generation handles money. It is not unusual to see siblings in the same family take polar opposite approaches to money management. This process can help parents identify when a trust may be necessary in the future to temper excess spending, or conversely to determine whether one child shows great promise and responsibility to take on important family finance roles down the road.

Tightening Up the Estate Plan

Basic estate documents are a must for every family, but parents often draft them when their children are young and forget to revisit and revise the plan as those children grow into adults. As wealth accumulates over time, what was once sufficiently covered by those basic documents can fall short in transitioning funds of size. When inheritance is in the millions, tax strategy becomes more important as does control and protection, both from liability and potential marital problems. These are issues that can only be tackled with more advanced estate planning strategies, and looping in adult children who have shown responsibility can solidify a smooth transition.

It is not uncommon for a parent to have shared wishes for inheritance verbally, but those wishes are not reflected in documents that direct the split of assets. Having old beneficiaries on file for IRAs and retirement plans is also common, and when a spouse passes away, these should ideally be updated promptly. In the end, next-generation adult children are most often named executors, trustees, and beneficiaries of their parents’ estates. These can be challenging roles to take on and understand without prior communication. Refreshing an estate plan is an opportune time to communicate to the next generation what their role may be in the future along with some details about the overall estate to prepare them.


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