Preparing the Next Generation: The Right Time to Start the Inheritance Conversation 

At what age should you start discussing inheritance with your children? Estate planning and inheritance, while complex topics, should be an ongoing discussion with your family. Even in their late teens, twenties, and thirties, children can benefit from understanding the emotionally and financially complex world of financial planning regarding the structure, details, and management of an estate plan and the passing down of an inheritance. Being prepared can help to mitigate unforeseen problems and risks that could appear later on.  
 

What are some ways that parents can work to communicate effectively with their children? 

• Have a plan before you sit down with your family – It may make it easier to talk to your children about estate planning and their future inheritance if you already have some sort of plan in order. 

• Emphasize your family values – Communicate what is important to you and your family beyond money. Explain how your assets represent your family’s beliefs, such as the importance of education, philanthropy, or entrepreneurship. 

• Lead by example – Children often mimic their parents’ behaviors. Demonstrate good financial habits, like saving and budgeting, in your life to reinforce your teachings to your children.  

• Establish a timeline – Begin discussing financial topics and issues as early as possible to help them build a foundation of financial understanding. You can then increase the complexity of the conversations as the children grow up and acquire a more profound grasp of how finance and money work. You don’t have to disclose exact dollar amounts when they are young. What you are doing is laying the groundwork for future discussions and providing them skills to one day apply when they receive an inheritance. 

• Avoid encouraging entitlement – Make an effort not to give your children the impression that they will be getting a large inheritance without having to go out and work for a living. Even though there may be a significant amount of money coming their way, they still have to go out and work for a living and be a productive member of society. 
   
   

Steps parents can take to begin the teaching process with children and teens 

• Begin with the basics of money – When the children are still young, begin teaching them the value of a dollar and that money is earned and not grown from trees. A financial education is critical, and it is incredibly helpful if started in childhood.ⁱ  

• Allow them to earn their own money – As a part of the basics of learning about money, give your kids the opportunity to earn their own. Experience is the best tool for learning. Give them a piggy bank and then an allowance for doing chores around the house, like feeding the cat or cleaning their room. With the money they acquire, they can save it and watch it grow. They can get a part-time job and save the money they earn. As they mature, they can take those savings and deposit them in the bank into an account. Eventually, they will be able to transfer money from their savings into a brokerage account and learn the power of investing.ⁱⁱ 

• Don’t let a teachable moment pass – Day-to-day life is full of teachable moments for children. Use these times to show them how they can apply what they learn to their own lives. Don’t talk down to them, though, or they won’t listen.  

• Minor mistakes are ok early on – It is ok if your children make a few minor financial mistakes early on in their growth. That is how they will learn, such as spending all the money they earned or their weekly allowance, so they can no longer purchase something they may want and have to start saving all over again. Lessons learned in small amounts are valuable later in life. Teach your children to recognize mistakes and, instead of just being angry about it, to learn from them. 
   

Steps parents can take to continue the teaching process with young adults 

• Teach them more advanced financial skills – Teach them about more advanced financial responsibilities involving budgeting, saving for retirement, how to responsibly use credit, the tax implications of decision-making, and how not to get tricked and to get taken advantage of due to a lack of understanding about an industry or its sales practices.  

• Transition to more specified topics – As your children grow up and mature, you can start expanding your discussions to more specific and complex topics. 

• Tell them where to find important documents – This may seem repetitive, but it is important. Let your family know where they can locate essential estate planning documents. 

• Reestablish the importance of family unity and the emotional toll this could take on family members – Family unity, especially during a difficult time, can help to make the transfer of your assets easier for them. Regularly remind them of how critical it is that they remain a unified front. A death in the family and then family dissent afterwards can be an emotional toll that could even break up relationships, and that is not what the distribution of an inheritance is all about.ⁱⁱⁱ 

• Have them sit down with a financial professional – You may consider introducing your children to your own financial professional so they can get an idea of how it is to work with one. If your choice is not right for them, at least they were able to recognize that, and you can then help them seek out their own based on their own needs and financial goals.^iv 
   
   

Steps parents can take to communicate as a family 

• Be transparent – Honestly, explain your intentions regarding asset distribution and explain any unequal divisions to prevent family conflict. You can also share basic information about your financial professionals and the location of critical documents such as wills and trusts. 

• Have family meetings – Take the time to have sit-downs with the family, all together, and discuss the family finances and your future plans, and be open to listening to their future plans, as well. Be sure to touch on all the different aspects of creating an estate plan and distributing an inheritance. Set a clear agenda that includes goals, hopes, and wishes for how your money is managed, charitable intent, and an overall financial education for your children. 

• Figure out roles and responsibilities – Clearly define the roles of any family members who will serve as executor, trustee, or power of attorney. Ensure they are comfortable with these duties. Also, determine who is going to get what in the inheritance, and, in some cases, you may discuss who wants what, etc. That may even help to quash some future dissent, later on. 
   

Consider scheduling a meeting with your financial professional 

It is no secret that talking to children about inheritance is a challenging subject for many parents. For some parents, this aspect of estate planning represents their time on earth being over, and this scares them. Other parents have different reasons for not wanting to let their children know how much money they will potentially get. These reasons are personal and vary, from the children not being good at money management to not wanting to destroy their motivation to be successful in their own right. Whatever the reason might be, a financial professional may be able to help you create a strategy to open the lines of communication so that your hard-earned money isn’t depleted due to fees, tax implications, and other things, such as probate or family conflicts. The sooner you start educating your children, the more beneficial it may be in the preservation and eventual cost-effective distribution of your inheritance to them. 

Important Disclosures: 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

All information is believed to be from reliable sources; however, LPL makes no representation as to its completeness or accuracy. 

This article was prepared by LPL Marketing Solutions 

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