By: Rachel Kieser, CPA, MT and Jane Scaccetti, CPA, MT
In Part I of this two-part blog series, we discussed what parents should tell their children about their wealth transfer plans. On the flip side, we will now address how children can get their parents to talk about it.
Studies show that 90% of inheritances are lost by the third generation, and not because of poor investment choices or taxes. Most fail due to lack of communication and trust within the family and failure to prepare heirs.
It is also rather normal to wonder just how much money your parents have. An internet search can reveal the value of their home and possibly the existence of a mortgage. You can assess spending patterns- where you shop as a family, vacations you take, and the kind of cars you drive- though, our experience is that children of all ages usually overestimate the wealth of their parents. But as the studies support, beyond curiosity, there are valued reasons for children to understand family wealth and the responsibilities that come with knowing.
Raising the question…”So just how much money do we have?”…is likely to cause parents concern. They will be concerned that regardless of the level of wealth, you will assume you need not work hard in life to build and achieve your own success. That concern has been well documented in history. But we as advisors, see a benefit when adult children understand the family values that created the wealth and their role in stewardship if they should inherit the wealth when communicated to them by their family. So, assuming you are not a spendthrift or risk taker, nor a ne'er-do-well, how do you build the trust to support your parents having ‘The Talk?’
Show Interest – Your parents may not know you’re interested in the details of their financial situation. A good way to start any conversation is to ask a question. Ask about their career – how did they come to their current job; how and with whom do they invest their money; are they financially ready for retirement? If something happened to them, what do they want you to do and who do you call? Once they realize you’re interested in their financial security, they may be inclined to divulge information on their assets.
Ask for Advice – Our parents are our first teachers and leaders in life. Asking for investment advice could provide insight on how they invest and they may even tell you some details of their resources. You could start by asking them for advice on how to invest your 401(k) or the best way to finance a home or car. Continue from there if they seem open and receptive to your questions.
Solicit the Help of a Trusted Advisor – You may use the same CPA, investment advisor, or attorney as your parents. Don’t just be relieved that your tax return is prepared and all you do is sign a paper. Ask to understand it. Ask to meet with their advisors -they can be great personal resources to you and they can help your parents with “The Talk,” too!
Share your concerns- If your parents understand your fear of life after them, they may understand the need to share more with you now so you can make better decisions once you are in control and they are not here to help.
We understand “The Talk” can seem daunting and uncomfortable to start. However, the more informed you are about your family’s wealth, the greater the likelihood you will handle your future inheritance well and be good stewards of your family’s wealth for future generations.