Money is still a taboo topic in polite society. We don’t engage in small talk with someone we’ve just met by asking them “So, how much did you pull down last year?” Instead, we stick towards mundane and unoffensive topics like the weather.
But, this social taboo may extend to our families as well. At one time or another, parents with inquisitive school-aged children will have to address the inevitable questions from their young ones about whether their family is “rich” or “poor.” Parents generally find a way to dance around the topic while landing somewhere in the “middle class” neighborhood.
Even after children are grown and have families of their own, many parents don’t want to discuss their finances or property with the kids—even if those kids are now in their 50’s. I think this is unfortunate. The fact is that most people want to leave their property to their children one day. If the kids are going to own it, why shouldn’t they know more about it now?
Communication can go a long way to smooth a transition from one generation to the next. Consider the adult child who has to take over managing a parent’s finances when the parent can no longer manage on their own due to dementia. Clients often tell me that they don’t know where to begin to look for their elderly parent’s key financial information.
As has been widely reported, the baby boomer generation have begun to inherit the greatest inter-generational transfer of wealth in history from their parents—as much as $12 trillion overall. That amount will be eclipsed when boomers leave it to their children.
Now, I don’t recommend that you report every penny of your financial situation to your adult children on a regular basis. But, I do think it’s a good idea to inform them, at least generally, about the nature of your assets, your investment and savings goals, and your ultimate estate planning goals.
If you intend to leave your kids some, but not all, of your estate, then it’s a good idea to tell them why you reached that decision. Billionaire Warren Buffet, who has famously decided to give away most of his fortune rather than leaving it to his children, thinks that the “correct” amount of money to leave the kids is “enough money so that they would feel they could do anything, but not so much that they could do nothing.” And Buffet, who updates his estate plan fairly regularly, allows his children to read the latest version each time a change is made.
Most of us don’t have the kind of “billionaire problems” that Warren Buffet has. Most of us hope that we are in a position to leave our kids anything at all. But, it is not the size of the inheritance that matters. Family members can squander a $15,000 inheritance just as foolishly as they do a $1.5 Million.
So prepare your heirs by educating them about what they may or may not stand to receive at your death. Help them to understand that their inheritance is not a sure thing, nor is it a panacea for a lifetime of poor financial decisions. Help them understand that a “fair” division of your estate among your heirs doesn’t necessarily mean that it is a mathematically “equal” division.
Talking about your financial situation with your adult children is just as uncomfortable as it was to answer the questions of your young and curious children all those years ago. I realize that. But, a lot of things that are good for us are uncomfortable (I’m looking at you, dentists).
Take some time, update your estate planning and financial documents, and then have one nice long uncomfortable conversation with your kids about it. Once it’s done, you’ll be relieved to know you’ve finally gotten everything in order.