We often talk about estate planning as a means for the people to have peace of mind about protecting and transferring their assets for their families. Less frequently discussed is the peace of mind of the people receiving the wealth, often the adult children of the person making the estate plan.
It seems odd to think that the idea of receiving wealth could cause anxiety or distress. Particularly if the wealth is significant, however, and the beneficiary has little experience managing assets, the prospect of an inheritance can feel more like a burden than a gift. Here are some tips on protecting not only your wealth, but the people for whom you actually acquired it.
Talk to Your Kids About Their Inheritance
Having made an estate plan, many people have no more conversation about it with their adult children than to mention which drawer of the file cabinet the estate planning documents are stored in. There are a variety of reasons why this is so. Some people feel it’s taboo or tasteless to talk about money. Some worry that if their children knew the extent of a future inheritance, it would change their behavior and make them less self-reliant. If parents make an unequal distribution of assets, or made a younger child your personal representative instead of an older one, they may be uncomfortable explaining this, and put it off endlessly.
Failing to have the conversation, however, does not eliminate the pain; it just passes it forward to your grieving heirs. If your children learn of your estate plan for the first time during estate administration, their confusion could lead to bickering, and ultimately a rift, between your children. Such discord is not what most parents intend to leave as a bequest. While you don’t need to justify your choices, consider whether they are likely to surprise or upset your children, and take steps to explain them in a way that will help your children understand and accept the reasoning behind them.
No matter the size of your estate, you are likely to have some items of personal significance or sentimental value. The disposition of these small items can cause as much arguing among heirs as the division of large amounts of wealth. Families have been known to divide stock portfolios and bank accounts without a harsh word, only to come to blows over Grandma’s chipped teapot. Ask your children what items are most meaningful to them and consider leaving certain items specifically to individuals via a special tangible personal property memorandum.
If You Have Significant Wealth
It’s not enough to accumulate wealth, nor is it enough to create an estate plan that transfers it to the next (or future) generations. It’s essential to prepare your adult children to manage what will one day belong to them, especially if your generation is the first in your family to have accumulated significant wealth. When one person, or even one generation, is responsible for the financial planning, a couple of things are likely to happen. The adult children will likely be ill-prepared to handle the wealth that comes their way, and the management, preservation, and growth of that wealth will be unsuccessful. The adult children may also believe their parents think them incapable, and may believe that of themselves.
In reality, of course, while the management of assets may be complex, it’s not magic. People learn to do it as they do anything else in life: by accepting increasing amounts of responsibility as their experience increases. Learning occurs when people have real-world responsibility for decisions, so the time to involve your children in managing their future wealth is now, while you’re alive. One way to do this is to establish a trust for your grandchildren and make your adult children trustees so that they can gain experience and confidence managing assets. Introduce your children to your financial planner and estate planning attorney so they have access to the same knowledgeable guidance you do, which will increase their confidence — and yours. Your children should also be given a summary of your estate plan, as well as the location of accounts, assets, and relevant documents.
Regardless of the size of your estate, your attorney can help you prepare your children to receive and manage it. Contact the experienced estate planning and probate attorneys at Davis Schilken at 303-670-9855 to arrange a consultation at one of our two locations in The Denver Tech Center and Golden, Colorado. We look forward to working with you.