Intergenerational wealth planning is best achieved as a team in order to plan for the things and people you love most. Over the next three decades, we are poised to witness the largest wealth transfer in history, as $6 trillion will be passed on to younger family members in the U.S. Are you having the “money talk” with your children?
Parents are making it a priority to pass down to their children the knowledge and tools necessary to responsibly handle a significant inheritance. They often feel their children’s values may become distorted by the comforts and benefits that wealth provides if not given the proper guidance. Ultimately, these parents fear the next generation will squander their wealth rather than use it as a tool for positive change.
Generally, the inheritor can feel one of two ways: grounded and financially empowered, or experiencing a lack of self-esteem or guilt over receiving funds they didn’t work for. In any case, there are several steps parents can take to help ensure the wealth they’ve protected will both endure and be used wisely by generations to come. Among these first steps are getting organized and having certain vital documents in place, keeping the lines of communication open with their children, and involving them at the start of the financial decision-making process.
Documenting your decisions about how your portfolio should be managed, who will receive your assets and in what manner are all important factors to take into consideration when drafting a trust or will. Parents who create trusts may find comfort in knowing that their children and grandchildren will benefit from a properly managed inheritance and that their assets will continue to be used in a way that reflects their values.
Equally important is communicating the details of your estate plan to your children and periodically revising those documents as circumstances change (e.g., marriages, births, illnesses or a changing economy).
When parents communicate with their children about their values and expectations for the family nest egg, children are more likely to be prepared when they receive it, and may also better understand their parents’ motivations. Likewise, parents are more likely to feel assured that their legacy will live on as their children and other beneficiaries learn to invest money and make contributions to society via philanthropic giving.
Hosting regular family meetings provides a space where your closest loved ones can share both expectations and concerns, discuss issues and reach agreements together. Some families go as far as developing a family “mission statement” that outlines shared family values and determines common objectives. Children should be involved in these processes from an early age.
Providing children with safe, hands-on money management experience at an early age teaches them to prioritize and make SMART goals (specific, measurable, achievable, realistic and time-bound). Further, allowing children to participate in decisions regarding investments and philanthropic endeavors instills a sense of responsibility and ownership in the process and decisions that are made. When the time comes, these traits and others may prepare them to manage the family legacy both intelligently and responsibly.
The good news is that the task of transferring wealth from one generation to the next can be eased. Parents may achieve the results they desire, through a multigenerational effort involving collaborative planning and open channels of communication. As business magnate, entrepreneur and philanthropist Bill Gates once said, “With great wealth comes great responsibility… to give back to society and… to see that those resources are put to work in the best possible way.” The sooner you have the “money talk" with your children, the better it may be for both your future and their own. iBi
Cathy S. Butler, CFP, CRPC is a financial advisor with The Butler/Luthy Group of Morgan Stanley. For more information, visit www.morganstanleyfa.com/thebutlerluthygroup.