For most affluent baby boomers, crafting an estate plan is already on the to-do list (or already done). But too often, planners say, the equally important task of discussing that plan with potential heirs becomes less of a priority.
“Money and death are two of the more emotional things that people don’t want to talk about,” says Howard Hook, a CPA and certified financial planner with EKS Associates in Princeton, N.J. “But this is a conversation that’s important for families to have.”
Only a third of Americans actually expect to receive an inheritance, although 44 percent of Baby Boomers would like to leave an inheritance for the people or causes they care about, according to Ameriprise. Meanwhile, a report by Accenture found that Boomers will leave a whopping $12 trillion to their children over the next 30 to 40 years.
Besides making it easier for survivor’s to execute an estate and tie up loose ends after a family member passes away, having ‘the talk’ also helps adult children figure out how to craft their own financial plans. Here’s how to have the conversation:
Pick the Right Time
Unless you have health issues and think your days are numbered, “Wait until the children have started to save and established themselves financially,” says Scott Michalek, a senior financial advisor with Wescott Financial Advisory Group in Philadelphia. “You don’t want to put a thought in their mind that they don’t need to be responsible because mom and dad are going to take care of them.”
Life events such as purchasing a house or the birth of a child might serve as a good opportunity to discuss your plans and how they may affect your children’s financial lives. Nearly two-thirds of parents and their adult children disagree as to when to discuss key financial topics like estate planning, a Fidelity survey found. Parents want to wait until after retirement to have such conversations, while their children would like to have them before their parents retire or have health issues.
Before you sit down with your children, visit a financial planner to run through the numbers to make sure you have an accurate sense of what your estate may look like and how you plan to distribute it. Make your assumptions as conservative as possible. “Cover all of your assets first, then exaggerate your expenses and plan for long term care,” says Anna Behnam, a certified financial planner with Ameriprise in Rockville, Md. “Then see what’s left after that.”
No one will complain if you end up passing along more money than expected, but you don’t want to promise to help cover your grandkids’ college costs or your kids’ vacation home if you may not be able to do so. If you’re worried that you may run out of money and need financial assistance from your kids, you should also let them know for planning purposes.
Be vague on numbers but clear on reasons
Just because you’ve run the numbers doesn’t mean that you have to give a specific dollar amount to your children. However, give them a ballpark idea of what they might be able to expect. This will help them with their own financial planning. Adult children underestimate the value of their parents’ estate by more than $300,000, the Fidelity survey found.
Even if you’ve spelled out your wishes in a will, discussing them with your children will help clarify them and be in a better position to carry them out. This may mean less confusion (and hopefully less litigiousness) during the emotional time after you pass away. This is particularly important if you’re leaving disproportionate amounts to siblings or stepchildren.
It’s important to hear any potential concerns your heirs have. In some cases, planners say, such conversations lead to a change in plans. For example, parents may decide to give their children money now for a big life expense such as purchasing a home or paying for school, rather than leaving it behind in an estate. This year you can give up to $14,000 ($28,000 for couples) to as many individuals as you like without having to pay gift taxes on it.
Once you’ve opened the dialogue, you don’t have to have the whole conversation at once. “It helps to have a conversation over a longer period of time, and make sure that those children understand—in a more explicit way—what your expectations are,” says Chris McDermott, chief operating officer with Fidelity Private Wealth Management Group.