by Nancy McColgan, Managing Director of Verdence/Family
Fear is What Keeps Parents from Discussing Family Wealth with Their Kids
Conversations about generational wealth and financial inheritance to kids can be challenging. It’s often rooted in fear and the desire to maintain control. Many parents struggle with how and when to discuss their wealth transfer planning, worried about the potential impact on their children’s behavior and values. However, open and honest communication is crucial for successful multi-generational wealth planning and strong family relationships.
First, A Story About Having Wealth Conversations with Family
Nearly a decade ago, I was meeting with an elderly couple who were revisiting their estate plan for what would prove to be the final time. They were both in their mid-90s, clear-minded, and fully aligned with their gifting and inheritance goals for their family.
The patriarch was long since retired and one of his five children was running the family business. Trusts had been established and a detailed gifting and inheritance plan for each child was long in place.
But when it came time to discuss what each of the children would inherit when the parents passed away, the patriarch pushed back. He was concerned that wealth would be squandered by one of their children, who had been a bit irresponsible in their youth.
It was only after much back and forth that the matriarch finally put her foot down, saying, “For goodness’ sake, he is 70 years old! He needs to make sure he can complete his own estate planning” that we finally made any progress.
After some hesitancy, the patriarch realized he had difficulty letting go of control and fear. And there is the real issue—control and fear. He had never shared the family’s complete wealth picture with any of his heirs, even after seven decades. I finally got permission to proceed.
“I can talk with my kids about anything.”
“Money?”
“No, not that.”
Avoiding an Inheritance Discussion with Children is Common
Anyone who has spent meaningful time in the multi-family office space has a similar story. But there is much to learn from generational wealth situations like this. There is a need to control, coupled with fear of the mistakes that the next generation and the heirs might make.
This can significantly hinder building and communicating the kind of generational wealth plan that helps ensure legacies. It also hinders future generations from getting the tools and resources they need for wealth management. But it’s still very common to have difficulty having the generational wealth talk about trusts, spending, family wealth, and financial inheritance to kids.
When the kids are, well, kids, the process can be relatively easy. No need to talk about it in any significant detail about wealth transfer planning. The “revealing the numbers” anxiety begins kicking in during the teenage years. In some states, informing children of funded trusts and balances is required at the age of majority (18, 19 or 21, depending on the state). In those instances, the wealth discussion and stewardship training should begin before then.
Typically, parents are terrified they are going to ruin their children’s incentive to be productive if the children know that they will receive a large inheritance down the road or will gain access to a funded trust at 25 or 30 years of age.
Conflicts between the parents at this stage are common and usually related to four factors:
- The amount to leave to children in trust or outright at death;
- When to have the wealth talk them;
- How to tell them, and
- What to tell them.
If there are stepchildren or stepparents in the mix, things can get even more complex. Again, at the heart of these challenges are fear and control.
As many times as I’ve been asked how to help families through this issue, there is no single answer or solution for how families should handle these matters, but there is a common thread in all those scenarios where things go smoothly: effective and timely communication.
Every family is different, and every child is different. The fear and control factors aren’t usually directly about preserving the family wealth; There are many good planning solutions for families to consider in protecting assets across generations. Parents often want to control what their children will do, the decisions they will make, and how they may react to a potential “windfall.”
While understandable, the last thing a family should do is nothing. Communication is key, albeit difficult.
Assuming the parents want to begin talking to the children regarding wealth matters, a good place to start is for each to first address any fears or hesitancy. Each party should try to avoid criticism and irritation, even if the fears seem ludicrous. Although they may very well be, in that person’s mind, they are real.
Preparing the next generation for inherited wealth can be very challenging.
Identifying the hurdles that hold parents back from having “The Wealth Talk” with their children is an important first step.
In addition, conversations may differ by child, so that should also be addressed. Parents must fully embrace and understand that they cannot control all outcomes. Every person, including their children, is ultimately responsible for the decisions they make about their life, good or bad. Most parents understand this logically, of course, but fear and control born out of love typically override the pragmatic side of things in sensitive matters.
After the fears and concerns have been laid bare, the next step must involve working on developing a plan as to how and when to proceed with the conversation(s).
Make sure both spouses are on board, even if their approaches are not exactly the same. In some cases, a meeting with the entire family may be ideal. For others, a two-on-one or a one-on-one conversation with each child works better.
Parents who have a hard time working through the discussion can work with a trusted advisor to assist them, either by preparing the parents or by facilitating a meeting. Multiple meetings are likely appropriate if children need education on trust terms, investments, philanthropy, or wealth strategy and planning. But no matter how long it takes, the initial goal must be to get started.
While parents cannot control all outcomes, preparation and honest discussion with their children are critical to well-grounded legacy planning. It shouldn’t be avoided. The best outcomes that I’ve witnessed are when parents have prepared and communicated well with their children on these matters at appropriate times.
Author:
Nancy McColgan | Managing Director of Verdence/FAMILY
FAQ: Talking to Your Family About Money
Why is it so difficult to talk about generational wealth? Why is having the wealth talk with children so uncomfortable?
Many parents struggle with anxieties around fear. They want to protect their wealth and worry about their children’s choices if they know the full extent of their inheritance. This often stems from a desire to motivate their children. Many parents are terrified that disclosing information about their family wealth may diminish their children’s motivation to be self-reliant and productive.
When should I start talking to children about money?
While you don’t need to discuss finances in detail with young children, beginning conversations about wealth and stewardship during their teenage years is advisable. This is especially crucial if they will be receiving access to trusts or inheritances at the age of majority.
What are the key points to address when discussing inheritance?
Parents often struggle with:
- How much to disclose about their wealth?
- When to have the conversation about inheritance?
- The best way to approach the topic with their children?
- What specific information to share regarding investments, trusts, and financial planning?
What’s the best way to approach these conversations?
Open and honest communication is essential. Start by acknowledging any fears or concerns you may have, and encourage your children to do the same. Unfortunately, there’s no one-size-fits-all “best” solution; tailor your approach to each child’s personality and maturity level.
Can a financial advisor help facilitate these generational wealth conversations?
Absolutely! A trusted advisor can offer guidance and act as a neutral third party during family meetings. They can help parents prepare for the conversation or facilitate discussions on complex topics like investments and estate planning. An advisor can also provide the necessary education to teach the next generations about money. They can highlight the benefits of wealth and bring awareness to the negative side, too.
What if my spouse and I disagree on how to handle these discussions?
It’s common for parents to have different viewpoints. It’s essential to find common ground and present a united front to your children. Consider seeking guidance from a trusted advisor.
Is talking about money really important if my children are already adults?
Absolutely. Avoiding these conversations can have negative consequences. It can create resentment, misunderstandings, and poor financial decisions later on. Open communication helps prepare your children for managing wealth responsibly.
What is the most important takeaway for parents struggling with this issue?
Don’t let fear and control paralyze you. While you can’t dictate your children’s choices, honest conversations about wealth and inheritance are crucial for successful legacy planning and strong family relationships. Remember, communication is key.
