by Michael W. K. Yee, Financial Advisor and Certified Financial Planner
According to the Family Wealth Checkup study by Ameriprise Financial, there’s a correlation between financial confidence and communication. While many families are discussing financial issues, they tend to shy away from topics like inheritance and estate planning, leaving some with unrealistic expectations. But family conversations about finances lay the foundation for a more secure financial future for the people closest to you.
Tips for Family Discussions About Finances
Don’t wait for a tragedy to bring up the topic. Nine in 10 adult children say a life-altering event triggered a financial talk with their parents. It’s best to have these conversations when all the important players in your estate plan can participate and communicate. With time on your side, you can cover topics thoroughly and have leeway to get the proper documents in place.
Families who have opened this dialogue report that it went much smoother than anticipated — conversations were straightforward and relaxed as opposed to awkward or difficult.
Schedule the conversation; make it a priority. Rather than just hope a conversation will happen, let each family member know ahead of time that you want to talk. Complex estates may require multiple discussions, so schedule a date to continue as needed. After your initial discussion, keep family members up-to-date about changes.
Share your agenda ahead of time. Consider starting the conversation by sharing your financial goals and values. Other topics on the agenda may include managing current finances, healthcare costs and legacy planning.
Manage expectations. It’s important to disclose enough detail so that your family can set appropriate expectations. If part of your legacy plan includes leaving an inheritance, consider letting your family know whether it’s an amount large enough to help fund your grandchildren’s education or closer to a down payment on a car. Only 21 percent of parents have told their kids how much they can expect to receive.
Create or update your estate plan. Pair your conversations with a comprehensive estate plan to prevent rifts that can happen when financial wishes are not clearly documented. Your estate encompasses anything you own. Creating a plan that determines what happens to these assets and accounts — no matter the size of your estate.
If you already have a plan in place, update it to mirror the blueprint you’ve shared with your family and consider providing instructions in a healthcare directive in the event that you cannot act on your own behalf in the future.
Disclose locations of important documents. Prevent headaches that can slow down the settlement of your estate by providing instructions —
where you’ve stored the safety deposit key, bank accounts, stock certificates and digital assets, etc. Ensure that your family has contact information of the professionals (lawyer, estate planner, tax, financial advisor) who are helping you plan.
Work with a financial professional. If you experience conflict in your family discussions or want some help navigating difficult topics, consider working with a neutral third party, such as a financial advisor. A financial professional can help family members understand your collective financial picture and can facilitate the transition of wealth from one generation to the next.
Ongoing dialogue about estate topics with family members can bring you closer together and pave the way for a smooth transfer of wealth —
when the day comes.
I’ve noticed that many people approach estate planning from the outside in, rather from the insideout. For example, many people want to “avoid probate” or “minimize tax” as a primary goal — good goals, for sure. If we stop there, we miss the opportunity to explore the deeper meaning underlying these goals, such as ensuring that we provide our loved ones as much as we can with assets to supplement their lives, and provide each of them the opportunity to grow, and develop and enjoy the most meaningful life possible.
A trustee is what the law calls a fiduciary. A fiduciary is a person who is responsible for taking care of something that belongs to someone else. Under the law, fiduciaries owe legally enforceable duties to the beneficiaries — the people or charities on whose behalf they handle assets.
Kingdom Advisors founder Ron Blue takes an interesting approach to estate planning. He advocates lifetime giving as a way to assure that the objects of your bounty are worthy recipients of your wealth. This could play out a couple of different ways.
Giving assets outright to your loved ones is a way to give them full control over and responsibility for those assets. However, one of your intended beneficiaries could easily lose his or her inheritance as a result of a divorce, vehicle accident or bad business deal. And this could happen due to no personal fault of the beneficiary. For this reason, many estate plans include ongoing trusts that allow the beneficiaries to have as much control as they are able to handle, while at the same time insulating the trust assets from creditors and predators who might try to take those assets away.
The thing about leaving assets to your loved ones after you are gone is that you will have no idea how each of them will handle his or her inheritance. Your best guess during your lifetime could turn out to be wrong. So what about making gifts during your lifetime that will enable you to see how your intended beneficiaries handle their new-found wealth? This could be a great way to “test drive” your estate plan and determine how well it works while you are still able to make adjustments to it. If one beneficiary turns out to be a poor steward of your wealth, you can always redirect assets in your final estate plan to other beneficiaries, or provide greater restrictions on a spendthrift beneficiary’s control over your wealth.
The same principles apply to charitable gifts. Your favorite charity could turn out to be a poor manager of donated assets. It would be far better to find that out during your lifetime than to leave your loved ones regretting your philanthropic choices. If a charity does what you hope it will do with your gift, you can add to it upon your death. Not only that, but your gift may have far greater impact the earlier you make it. If, for example, you want to provide funding for scholarships so underprivileged children can go to college, the sooner you make your gift, the sooner a scholarship recipient will graduate from college, get launched in a career and turn around and “pay it forward,” as you have done.
As Ron Blue would say, you should consider “giving while you’re living so you’re knowing where it’s going.” It’s sound advice for anyone who prefers to test the water before diving in head first.
When Terry discovered his home had been burglarized, the frustration of having to replace his valuables paled in comparison to the feelings of being violated. Then, several nights later, someone entered his garage and stole his car. What Terry didn’t realize was that during the burglary of his home, the thief took his spare set of car keys. While still in shock over the initial crime, he now had to deal with being a victim once again.
If an estate plan is our final personal and intimate letter to our loved ones, why is it that we can’t understand it when we read it? This last intimate writing should be full of our unique, personal and emotional voice, yet, it reads like a sterile contract, devoid of any human feeling or emotion. Why?