There can be a real sense of relief when your estate planning documents are finally signed. You’ve spent time thinking about what you own, who you want to leave it to and how you want it handled. But there’s another part of estate planning that’s easy to overlook: preparing your heirs for what they may someday receive.
Receiving a significant inheritance sounds like a good thing, and in many ways it is. But suddenly being responsible for a large amount of money can also be difficult. More than 25 years ago, psychologists Stephen Goldbart and Joan DiFuria coined the term “Sudden Wealth Syndrome” to describe some of the challenges people can experience when they suddenly come into significant wealth.
They found that along with the opportunities that come with new wealth, people can experience anxiety, guilt, uncertainty and difficulty making decisions. An inheritance can be particularly challenging because it often comes at an emotional time. Your children may be dealing with the loss of a parent at the same time they’re being asked to make financial decisions they’ve never had to make before.
Even someone who has done a good job managing their own finances may not be prepared to manage a large investment portfolio, understand the terms of a trust or decide what to do with inherited property. A little preparation ahead of time can make a difference.
You Don’t Have to Tell Them Everything
One reason parents sometimes avoid these conversations is that they don’t want their children to know how much money they have or how much they may someday inherit. That’s understandable. Preparing your children doesn’t mean you have to share account balances or tell them exactly what they will receive.
The conversation can start much earlier and should be appropriate for their age and maturity. When children are young, it may be as simple as talking about saving, spending, giving and the values that are important to your family. As they get older, you can share more about the financial decisions you’ve made and the reasons behind them.
Eventually, there may be value in explaining parts of your estate plan. If you’ve created a trust, for example, your children may benefit from understanding why you created it and what you hope it will accomplish. They don’t necessarily need to know how much money will be in it to understand its purpose.
Make the Introduction Before It’s Needed
There may also come a point when it makes sense to introduce your adult children or other beneficiaries to your wealth advisor.
This doesn’t have to be a formal family meeting. We’ve had clients bring children into a meeting simply to meet us and become familiar with who we are and what we do. That first meeting doesn’t need to include balances or detailed financial information.
There is value in having that relationship in place ahead of time. When a parent dies, there can be a lot happening at once. There may be an estate to settle, investments to manage, tax decisions to make, property to deal with or a trust that now needs to be administered. It can be much easier to make that first phone call when your children already know who they’re calling.
These meetings can also give your children a chance to ask questions. We can explain what a trustee does, how investments are managed, how a trust works or simply help them become more comfortable talking about financial matters.
The Documents Are Only Part of the Plan
A well-written estate plan is important. A trust can provide direction for how assets should be managed and distributed and can provide protections that an outright inheritance may not.
But there are some things a document can’t do. It can’t give someone experience managing money. It can’t explain why you made the decisions you made. And it can’t create a relationship between your children and the people you trust to help them after you’re gone.
That’s where we can help. We can meet with your children or other beneficiaries, answer their questions, explain things in plain language and help you decide what information you’re comfortable sharing. These conversations can happen gradually as your children get older and as it becomes appropriate to share more.
You’ve spent years building what you have and time making sure your estate plan reflects your wishes. Preparing the people who may someday receive those assets is another important part of that planning.
If you’ve completed your estate plan but haven’t thought about how to prepare the next generation, we’re here to help you start the conversation.
