Inheritance Shouldn’t Be a Secret

Family wealth and inheritance can have a significant impact on the younger generation’s options and standard of living. But, contrary to popular belief, that impact isn’t always positive. In one 25-year study of thousands of families, researchers found that about 70% of generational wealth transfers ended in involuntary loss of control of the assets.

Posted on August 28, 2018

While many factors may contribute to the failure of generational wealth transfer, the key issues leading to loss of inheritance often lie within the family. And, one of the most significant problems contributing to inheritance erosion could be easily resolved at home.

Families Don’t Talk about Inheritance

A survey conducted by financial services firm Ameriprise Financial revealed that only 21% of children were told how much money or property they could expect to inherit. Families avoid conversations about inheritance for a variety of reasons, some of them contradictory and most of them counter-productive. For example:

• General discomfort talking about money
• Reluctance to admit to financial challenges that may mean little or no inheritance
• Concern that the promise of a large inheritance will deplete motivation
• Fear of family conflict, a concern that appears to be increasing with each new generation

Unfortunately, this reluctance to openly discuss inheritance and other family financial issues often backfires. In the 25-year study referenced above, researchers attributed 97% of losses to one of three problems:

• Breakdown of family communication and trust
• Inadequately prepared heirs
• Failure to establish a family mission

While many families go to the trouble of seeking legal and financial advice and creating solid structures for passing and protecting wealth, they often neglect the most important piece of the process—the person or people who will inherit and be charged with management of those assets.

Preparing Your Children and Grandchildren to Manage Assets Responsibly

The first and arguably most powerful tool for instilling financial values, perspective, and judgment in the younger generations in your life is modeling. Unfortunately, even those in the older generation who have solid values and goals themselves and manage money responsibly don’t always successfully model those priorities and skills because so much financial decision-making and management takes place behind closed doors.

Your children and grandchildren learn how to treat others, how to maintain their homes, and how to care for themselves from observing your actions and choices as they grow up. You can just as easily instill values such as responsible spending, charitable giving, and attentive management of assets through example—but, only if you let them see you managing these areas of your life.

Other tips for preparing your family to make the most of an inheritance include:

• Teach your children about financial responsibility, and prepare them to be informed consumers and make good decisions when choosing and consulting with financial advisors, investment brokers and others
• If you have significant wealth to pass along, make sure that your children understand how you’ve built and maintained that wealth so they will understand its value and recognize that it is not self-perpetuating
• Give younger generations an idea of what they can expect (or should not expect) in terms of inheritance—keeping mum can lead to assumptions that steer your heirs in the wrong direction
• Be aware of changes, not only in finances and assets, but in family make-up and perspective, and continue the conversation as needed

Don’t let your legacy go to waste. Make talking to younger generations and preparing them to both benefit from their inheritance and manage responsibly a part of your estate planning process.