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Talk to your child now about his future, potential, inheritance.

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What happens when a young adult inherits a sum of money, but money was not a topic of discussion in her family? If her parents are gone, whom will she talk to about her inheritance? Will she have a vision for her wealth? Will she know how to manage it, or where to look or to whom to turn for help? Or, will she blow through it without thought?

Silence about money is the norm for many of my solid middle-class clients. They were not raised with wealth. They do not consider themselves to be wealthy. However, at their death, they will be leaving their children sufficient assets to make their children wealthy. The New York Times said, “…the scale of wealth that some children stand to inherit is life changing. Not talking about it borders on parental negligence.”

Rich or not, a lot of Americans consider talking about money vulgar or tacky. Even within families, the topic can feel awkward.

Managing an inheritance – whether $20,000 or $20 million – requires a different financial education than the one required for daily living. Children from affluent families grow up understanding that:

  • They will inherit wealth;
  • They have a responsibility to manage their family’s financial legacy;
  • Their marriage will include a pre-nuptial agreement;
  • They have access to a team of financial professionals to guide them – lawyers, CPAs, financial advisors, bankers, etc.

Middle-class parents do not similarly raise their children. Very many of my clients are shocked when we “do the math” to see the total value of their wealth – life insurance, home equity, retirement plans, and brokerage accounts – that will pass to their children. Most consider nuptial agreements abhorrent. They don’t have them and they do not expect their children to have them. And if the parents have financial professionals advising them, they likely have not discussed the role of the advisor or introduced the advisor to their children.

These are difficult conversations, understandably. Here are some of our tips for warming up to the topic:

  1. You have raised your children to a lifestyle greater than the one in which you were raised. Teach your child how to maintain that lifestyle after you are gone. The last thing you want is for your child to be overwhelmed and unprepared when you “get on the bus”. It is horrifying to see the human leeches who will glom on to someone who just inherited money. While you are alive, demonstrate frames of reference and perspective to  your children, as well as how to choose trusted advisors.
  • Remember that discussing money with your heir is not the same thing as giving it to him at that moment. You have the power to create gifting and inheritance structures that will support your child’s ambition and your work ethic.As I’ve said before, one of our goals is to keep an heir from hurting himself with knowledge or reality of an inheritance. You can structure inherited wealth to promote responsibility and allow access to funds earned in stages, by age, or achievement, or need. Your team of financial professionals can help with this.

  • Normalize financial discussions. Family goals are more easily achieved if you comfortably discuss money together. Share the difference between the value of money, and the value of the time that money allows. Model saving and investing.  As your children mature, work toward a shared vision of philanthropy and agree on the best possible use of your family’s money. To ease communication, speak about money as a tool rather than a secret.

  • Encourage early involvement. Your children need to know what is involved in managing money now, so they are ready when it is theirs. How young is too young? My parents turned their finances over to me when I was twelve years old. They were terrible paperwork people and knew that I was not. While not every pre-teen is ready to be the family bookkeeper, you might be surprised at how resourceful and thoughtful your children are.

  • Separate the concepts of inheritance and death. The message of the practicality of receiving your family’s wealth can get lost in the wind if your children get stuck facing the inevitability of your dying. Please don’t start conversations with, “When I go…” If you avoid an emotional trigger, the pragmatic conversation about managing a life-changing amount of money is much easier.

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