The Cost of Silence: How Avoiding Inheritance Discussions Can Destroy Generational Wealth
Maintaining generational wealth involves intentional financial planning, with parents or grandparents passing their wealth to loved ones after they die. But entrusting family members with receiving an inheritance is more than just passing over bank statements or sending a check in the mail. It is about understanding how to steward the hard-earned wealth that you have spent your life building.
You are not alone if you are uncomfortable discussing your finances with your children or grandchildren. For many parents, talking to their children about their future inheritance is a challenging topic to explore. Did you know that only about one-third of adults have a prepared will, and about 40% with investable assets of $1 million or more never discuss their estate plans with their children?i This communication breakdown is correlated with the fact that 90% of the time, inherited wealth is entirely squandered by the third generation, and 70% of the time, it is gone by the second.ii These troubling statistics lead financial professionals to believe that talking to children about their inheritance may help reverse this downward trend.
Why don’t parents want to talk to their children about estate planning and their inheritance?
Studies indicate that there are a few reasons a parent does not want their children to know how much money they have and how much they will get.
Entitlement
- The child knows they will one day inherit a significant amount of money, and due to this, they may feel entitled to simply receive it without putting in any effort to maintain it.
Motivation
- Knowing that one day they will come into a significant amount of money could affect their motivation to work hard and succeed on their own merit. Anderson Cooper, a CNN journalist and son of multi-millionaire Gloria Vanderbilt, never received a trust fund from his mother. Instead, he generated his own wealth. He is quoted as saying, “From the time I was growing up, if I felt that there was some pot of gold waiting for me, I don’t know that I would have been so motivated.”
The Value of a Dollar
- Children who grow up with money available, or those who may be aware that they will get a large sum in the future, could focus on the material things they will buy or the fancy vacations they could one day take. Parents want children to understand the value of a dollar and that generating wealth is difficult. The money was hard-earned, and being financially responsible and controlling frivolous spending, for example, is an essential life skill that can be learned.
Wealth management
- Wealth management is a long-term responsibility that everyone should practice. Those who learn to manage wealth efficiently tend to live financially confident lives.
Lack of gratitude
- In Shakespeare’s play King Lear”, the king says about his daughter, “How sharper than a serpent’s tooth it is to have a thankless child.” Studies have indicated that children who are grateful for the abundance in their lives and good fortune that comes their way are not only happier but more intent on the preservation and stewarding of the wealth that is passed down to them, as well as sharing similar values to those of their parents or grandparents in terms of wealth management.
That is a compelling list of why parents may be concerned about discussing their finances and inheritance with their children; however, discussing your children’s future inheritance with them has many benefits.
Why is it important to talk to your children about getting an inheritance?
First, as mentioned above, the fact that most parents don’t talk to their children about their finances, and the statistics around wealth being lost so quickly, should be a significant red flag. You don’t necessarily have to tell them the exact amount of inheritance they will get; however, letting them know that there is an inheritance in their future can allow you to open the door toward teaching financial responsibility, advanced money management skills, among other important factors of life such as, having, standing by your values, and the dangers of frivolous spending. It is estimated that between $68-$84 trillion will be transferred from baby boomers to their spouses and descendants in the subsequent generations.iii That is a lot of money to be squandered.
Get the help you need from a financial professional
One strategy that parents can explore is to get help from a third party who is not emotionally involved, such as a financial professional. A financial professional has the knowledge and experience to help parents discuss different ways to approach money-related issues. They may have helpful tips and insights on how to navigate a significant life event, such as children suddenly coming into wealth that they may have no experience dealing with.
Some parents may even want their children to sit down with the financial professional. In some cases, this could be beneficial as some children may find it easier to listen to a financial professional instead of their parents. The trick is not to wait until it is too late. Time flies by, and the longer you put off teaching your children how to manage their inheritance, the chance of them becoming just another statistic becomes a reality.
As you consider the next steps in your family’s wealth journey, take a moment to assess your current strategy with our generational wealth checklist.
Important Disclosures:
Content in this material is for educational and general information only and 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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