A conversation with your heirs

One of the challenges that many parents face as they grow older is talking to their adult children about inheritance, wealth, and the financial implications of their mortality. Unfortunately many parents feel they have time so they delay having the conversation. That can be a mistake. Openly communicating with your children may not solve all of the problems, but it can reduce family conflict and empower your children to act on your behalf, should it become necessary. Communicating openly can also help prepare your loved ones to become responsible inheritors.

Family meetings are not only for the very wealthy, experts say that regardless of your net worth, an annual family meeting can help you create a comfortable forum for discussing your goals related to managing money, and important details about your wishes for the disposition of your estate.

Having a family meeting on an annual basis can also help you clarify your intentions regarding any possible misunderstandings that may arise from disproportionate splits of an estate. This is especially important when remarriages and second families are involved, or when parents want to name charities or unknown parties as beneficiaries.

Start your family meeting with a discussion of the basics. You should outline where you keep your will and other important documents, as well has identify the executor. Although it is not necessary for everyone to know all the details of your financial situation, it is imperative that at least one family member know the location of your important records. Some of the issues you may want to discuss are:

  • Have you granted someone a durable power of attorney and a power of attorney for health care?
  • Do you have a safe deposit box? Where is it located, and what are the contents?
  • Does your retirement program have a death benefit for survivors?
  • Have you established any trusts, and for what purpose?
  • How have you arranged to handle any applicable estate taxes?
  • Have you shared the names and contact information of your financial, tax, and legal professionals with your children?

It is important to provide your children with a financial education on the management of your assets. One approach is to introduce your children to a trusted advisor who can help them understand their financial options and encourage them to make choices that support their long-term interests.

Parents may also seek to utilize trusts to transfer assets to their children and grandchildren. Some trusts for life can protect their children’s assets from creditors, divorce settlements, and estate taxes. It is important to talk about the trust with your beneficiary and explain its purpose. An option for parents seeking influence is an incentive trust, which enables parents to establish terms governing the distribution of funds. An incentive trust can provide financial motivation for adult children to excel and to meet certain goals.

Regardless of how you plan to transfer your wealth, raising children who can identify their own passions and interests in life is the best way to ensure responsible money habits. Inheritance decisions should provide money to encourage your children to be successful and productive, but not so much money that your beneficiaries do nothing.

Working together with your financial, tax, and legal professionals you can discuss how to create an estate plan that achieves your wealth-transfer objectives as well as establish a trust for the distribution of your assets.

Mark Zagrocki is a Chartered Retirement Planning Counselor and Financial Advisor with Wells Fargo Advisors in Westlake. Wells Fargo Advisors does not provide legal or tax advice. Please consult your own tax and legal advisors before taking any action that may have tax consequences. Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE. Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.
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Volume 1, Issue 3, Posted 1:53 PM, 09.22.2009