PERSONAL FINANCES: Discuss your finances and estate with your children
Much has been written about educating your children on how to handle money responsibly. Several months ago I discussed this topic, Prepare Your Kids for Financial Adulthood, in this column. Today’s column is the flip side of this discussion; that is, what to disclose to your children about your finances. For many of us, discussing our own finances and estate intentions, even with grown children, can seem awkward. However, in my experience, delaying discussing our finances with our children is a mistake.
While each family dynamic is unique, when I refer to children in this context, I am referring to mature children – say, college age and older. At this age, I can assure you that your kids probably know more about your finances than you think. And as uncomfortable as this discussion may be for you, it will be less so for your children. Your kids can research just about anything online. At a minimum, they can easily find the pay scale for most jobs and occupations; and Zillow will estimate the value of your home. You probably keep copies of brokerage returns and tax returns in files that they may have found “accidentally”. For example, I have a wealthy client who believed that his college-aged children had no idea how wealthy their family was, although they had never taken a commercial plane in their lives. Talk about naive!
It’s important that you have an open family discussion about your finances – and your child will eventually find out anyway, likely without the benefit of your explanation and advice. I think that your children should know the details of your inheritance plan, particularly in relation to your intentions to dispose of inheritances (amount, schedule, restrictions and possible conditions); perhaps the permanent responsibilities that may be asked of them concerning the brothers and sisters; and possible philanthropic intentions. They should also know if you are relying on them to take on future responsibilities for your ancillary estate documents, such as health care powers of attorney and power of attorney. Also, since you may have decided that some responsibilities may fall on some children and not others, discussing your thinking now will prevent their future speculation on issues of parenting.
My advice is to structure the discussion in advance. I suggest you consider covering several key points:
Financial situation and pension plans
You’ll want to discuss your overall lifestyle, your retirement plans, and how you plan to fund your retirement. Are you planning to downsize or move to a senior citizen community? I recommend that you be as transparent as your comfort level allows. The conversation should also include a broad discussion of your values, as well as the responsibilities, opportunities, and expectations that come with inherited wealth.
Consider reviewing the details of your will and any trust that has already been created or will be created under the terms of your will. Equally important, you should discuss the reasoning behind your decisions. These documents reflect your values and it is important that your children know your choices firsthand and have the opportunity to discuss them with you.
It is not uncommon for children to have unequal needs, and sometimes we may decide to treat our children unequally to reflect these differences, both throughout our lives and through our estate plans. Again, it’s important to discuss your reasoning for doing this. It is unusual, and often ineffective, to have multiple children as co-executors and co-trustees. It is better to discuss your choices now than to leave them the subject of inaccurate and sometimes hurtful assumptions after your death.
In preparation for this discussion, you may want to prepare a “final greeting letter” that you can share with your children. The preparation of such a letter is always appropriate and useful. He can discuss funeral indictments and provide a host of other information that will be extremely valuable to your family at the time of your death. There are many sample letters online that you can use as guides.
Important documents and business contacts
To alleviate the anxieties and future administrative burden of your children at the time of your death, serious illness or the normal aging process, you need to organize your financial records, family documents, etc. and share their location (and passwords) for an easier transition. It is also important that your children know how to communicate with your professionals such as your lawyer, your accountant and your insurance broker, who can be of assistance to them.
Having an open discussion with your children about your financial situation is beneficial for you and for them. As a parent, you gain comfort in knowing that your children understand your values and the basis for your decisions, and they gain useful information that will be useful to them now and in the future. Your children will appreciate your consideration. Over the years, I have received feedback from clients who have had these family discussions; they all agreed that it was one of the most important conversations they had ever had with their children.
The author does not provide tax, legal, financial, or investment advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, financial, and investment advisers before committing to any transaction.