What Your Children Need to Know About Their Inheritance

Senior Couple Talking About InheritanceThere are many reasons aging parents don’t talk to adult children about their inheritance. They may not want to their children by talking about their own mortality. They may fear that, if their adult children know an inheritance is coming, they will be less motivated to work hard themselves. And, of course, talking about money is often viewed in American culture as impolite, even among family. (If you doubt this, next time you’re at a dinner party, turn to the person next to you and ask their salary.) Uncomfortable as it may be, it’s important to be able to share what your children need to know about their inheritance.

Why You Should Talk to Adult Children About Their Inheritance

Most financial experts agree that it is valuable to discuss inheritance with your adult children; however, it’s generally considered wiser to keep the discussion general, rather than get into the nuts and bolts of what each child can expect to receive.

The primary reason it is recommended to discuss inheritance with your children, is ironically, one of the reasons many parents hesitate to do so: the risk that the children will manage their money unwisely. Parents may think that if they tell their children that there is a significant (or even a modest) amount of money in their future, the children will spend recklessly, counting on that future income.

The reality is somewhat different. If your adult children are not expecting to come into whatever money you leave them, when they receive it, it may be viewed as a windfall and spent quickly or unwisely. This is true whether you leave behind $5000 or $500,000. If your child isn’t prepared to make the wisest use of whatever you leave him, when the money runs out, he’ll be back where he started financially, just with fancier tastes—and without his parents around to bail him out.

You can prepare adult children for their inheritance without necessarily giving them a look at the specifics of how much they will receive (after all, you don’t know how much of those assets you will need or want to use in your own lifetime). But you can plant seeds about wise money management. For example, you might say, “As you know, I’ve tried to handle my money wisely, and that means that when I’m gone, you will be receiving an inheritance. I want you to start thinking now about how you can make the wisest use of what you receive. I enjoy knowing I’m financially secure and won’t be a burden on you; I want you to have that same feeling of security.”

Opening this conversation can also give you an insight into your child’s priorities and future plans. Would they open a business if they had the capital? Ensure that their kids could go to college without debt? Having an adult-to-adult conversation about finances offers the opportunity to get to know your child on a new level.

There may be another reason you want to talk to your adult children about their inheritance: if you’re leaving your children different amounts of assets. Estate planning experts generally advise against leaving children unequal inheritances. However, if you have a good reason for this, make sure your children understand your reasoning and that it doesn’t mean you love one more than the other. Otherwise, the inequality may lead to resentment and a permanent damaged relationship between them—a legacy you surely do not want.

Should You Talk to Your Minor Children About Their Inheritance?

As important as it is to talk to your adult children about their prospective inheritance, it’s probably less wise to do so for minor children, for a variety of reasons. First, if your children inherit from you while they are still minors, they won’t be handling their own assets; a guardian or conservator will do that for them. Second, especially for younger children, talking about their inheritance means talking about your death, which may spark unnecessary anxieties and fears.

However, many younger children already do worry about what will happen to them if a parent should die. Sometimes these questions arise after hearing or reading a story, like Harry Potter or Cinderella, in which a child was mistreated or impoverished after a parent’s death. If your child raises this concern, you can reassure them that you expect to live a good long time, but that even so, you have planned for them to be cared for and provided for.

Show, Don’t Just Tell, About Money Management

Of course, whatever the age of your child, it’s best to model good money management skills, and to let your child know what you’re doing. Let your child see you comparison shopping for cars, researching investments, donating to charities. When your child learns from you that money is a tool that can maximize long-term satisfaction, they will be more likely to want to use that tool wisely themselves.

Of course, if, after everything you’ve done and said, you still fear that your child may use their inheritance unwisely, talk to your estate planning attorney about establishing trusts or other means of protecting your children and their inheritance.

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