It's every parent's dream to leave a lasting legacy for their children. That said, passing on wealth is not as simple as we might think. Inheriting money or property can come with a lot of problems, some of which can be avoided with the right planning. (As I mentioned in a previous blog, 80% of all inheritances are spent within ten years.)
With so many people inheriting assets in the next few decades, it’s now more important than ever to make sure that beneficiaries have access to the financial education they need to take responsibility for this wealth. “The Great Wealth Transfer refers to the massive shift of wealth from the Baby Boomer generation to Generation X and Millennials, estimated to be around $84 trillion.”
Here are 3 ways you can help ensure your legacy has the impact you want on the next generation.
One of the biggest mistakes parents make is not communicating with their children about their future inheritance. This can lead to confusion and resentment later on – especially if they’re factoring an inheritance into their own retirement plan. So, it's important to communicate early and often about what they can expect to inherit and how it fits into your overall estate plan.
Communication also prevents beneficiaries from relying on future wealth that may or may not be there; children could suffer great financial consequences if an expected inheritance does not materialize. It’s important that they understand that passing on wealth is not guaranteed, and inheritances can be reduced due to taxes, market fluctuations, and legal challenges.
You might already have a will in place, but if you’re concerned about how your children will handle an inheritance, a trust might be something you want to consider. A trust can offer additional benefits such as ensuring that your children don't receive their inheritance all at once. Instead, you can set up the trust so they receive regular distributions over time, which can help prevent overspending and mismanagement. Again, communicating this plan with your loved ones can help ensure they’re not unpleasantly surprised down the road.
Yes, you can grab a random will online that you can fill out in a few minutes, but that might not be a good idea. Here are the reasons why you should consider speaking with a financial professional and an estate attorney.
- They help you have complex and emotional conversations: Involving an impartial third party in your discussions with your children might take some of the heightened emotion out of the situation.
- They give you an “out”: Even if the plans you’ve put in place are your wishes, it can be helpful to say, “This is what I was advised to do by a trusted professional.”
- They provide your loved ones with a resource: Inheriting assets can be complex and happens at a time when your loved one might be experiencing a lot of stress and emotions. Introduce your beneficiaries to your financial and/or legal professional before the unthinkable happens so they have someone they feel they can go to with questions.
I know taking these steps isn’t easy – but it’s better to do them rather than worry that the legacy you worked so hard to provide might not be used in the way you envisioned.