This article was originally published in Barron's. The number of people dissatisfied with their financial advisors may be higher than […]
It’s 2019 and parents still feel it’s taboo to discuss their personal finances with their own adult children. But parents may want to learn to get over it if they truly want to help their kids. Just because you saved and invested your money wisely over the years and now find yourself financially comfortable doesn’t mean your money work is done. In fact, you still have one more important job to do: Explaining your future financial plans and expectations to your kids.
The idea of full disclosure with family members about your personal finances might go against your grain. It can be uncomfortable to reveal how much you’re worth, and who’s managing your wealth, and downright awkward saying it out loud that they have a future inheritance. And then there’s the dreaded discussion about what would happen to your finances if you suddenly became physically or mentally incapacitated. It’s possible they’ve never met your attorney, accountant or Investment advisor or have a clue where you keep all your important documents. They may never have heard from you about whether you want to be buried or cremated after you’ve passed on.
Think about it: Do you really want your children to be overwhelmed and dismayed--struggling to find those answers after you or your spouse are facing a serious health issue or have passed on? Talking openly about all of these retirement-to-end-of-life issues is a critical family responsibility. Doing it with them now can save a lot of resentment in the future.
Talk to your kids about what you want and why. Tell them how you plan to spend your money while you’re alive, your expectations about leaving assets behind to whom, and patiently explain your rationale. Until your children become the inheritors, your money is yours, not theirs. You have every right to spend down your nest egg rather than frugally preserve as much as possible for your heirs. Either way, you owe it to them to communicate your intentions, especially if they’re under the mistaken assumption that they’re in for a huge windfall when you’re gone.
Assuming you trust them and your relationship is healthy, let them know how much you’re worth right now, how much of your net worth you estimate you’ll spend until the end of your life (including any reserved for catastrophic healthcare expenses), and how much you hope to pass on to them. Also make sure they’re aware of any loans or credit balances you’re still paying off.
If you own a successful business, you need to communicate your transition intentions to your kids long before you’re gone. Especially if one or more of your kids has contributed to its success and you want them to receive a larger percentage of the proceeds if you sell.
Follow the same process if you want to keep the business going. The children who work for you should inherit a larger stake in the business than those who don’t. But along with the share allocations, you should define their future roles. Two children can’t both be CEOs. And maybe neither should be. Your succession plan may cause resentments, so it’s best to get your decisions out in the open now rather than risk turning siblings into rivals after you’re gone.
If you have long-term-care insurance, it’s critical for your children to know where your policy is and what kinds of benefits it provides should you become physically or mentally incapacitated. If you’ve already identified one or more preferred assisted living facilities or nursing homes, let them know ahead of time.
Consider consulting with your attorney to give a child durable power of attorney to make health, financial and legal decisions on your behalf if you can no longer make them for yourself. And make sure they’re aware if you have a living well that spells out your end-of-life wishes.
You don’t have to give a copy of your will to your children. But you do need to let them where your will is located and who will serve as executor of your estate. If you would like one of your children to take on this role, make sure they agree to it, since can a lengthy and time-consuming responsibility. If you’ve set up a trust with your children as beneficiaries, make them aware of this, since any money they receive from the trust may be considered taxable income. If you have valuable jewelry, artwork, collectibles or furniture, you may want to set aside an afternoon at your next family gathering to let them negotiate “who gets what” and document this in your will. It will save a huge amount of arguing later.
This also may be a good time to let them know way ahead of time whether you wish to be cremated or buried. If the latter, let them know the location of your burial plot. If you’ve made funeral home arrangements ahead of time, telling them will alleviate a great deal of anxiety.
Since the time after your passing will be one of stress and confusion, the last thing you’ll want your children to do is go on a financial scavenger hunt. Instead, compile a folder of all of your legal documents, bank and financial account numbers and statements (including login information for online accounts), insurance policies and other estate-related information and store it in your safe deposit box (you may also want to give a copy of these documents to your lawyer).
And, even more importantly, arrange a time and place for your family to meet to discuss all of these issues, answer their questions, and identify any issues that should be settled while you’re still in good health. But don’t treat this as a “one-and-done” event. Plan to re-engage again--either in a group or individually--to make sure they understand the information and can voice their questions and concerns. Life is dynamic and ever changing so consider having these discussions every year and update your changes. It’s an emotionally charged topic but talking openly and candidly will help take the fear away.
You may even want to invite your attorney, accountant or financial advisor to one of these sessions especially when the subject turns to your passing since they’ll be better qualified to answer your children’s questions, and you’ll be establishing a connection with the professionals they will need to work with-hopefully, far off in the future.
Finding the right financial advisor can be challenging. Let Wealthramp help you find the right advisor who will help you with your personal financial needs and situation.
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