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How To Prepare Your Children To Receive An Inheritance

How To Prepare Your Children To Receive An Inheritance

October 22, 2020

Do you want to leave a lasting legacy that blesses your family for generations? If you’re like most of our clients, the answer is a resounding yes! Building your wealth to provide for your family today and for generations takes decades of hard work. But your legacy goes beyond leaving money in an account for your heirs. 

We’ve all heard the cautionary tales of heirs who squandered the family fortune that represented a lifetime of work. Since one-third of those who receive an inheritance blow through it in two years, (1) you need to add something else to your checklist: preparing your children to handle their inheritance wisely. No matter how much you plan to give them, you want your children to make the most of what you pass down. Let’s look at some ways you can empower your children to manage the wonderful gift and responsibility of your generosity. 

Communicate Your Values

A critical part of preparing your children to receive an inheritance starts when they’re young. Throughout their childhood and young adult years, you should be sharing the financial life lessons and values that mean the most to you. For example, if you choose to drive an older car so you can put money away for a rainy day, or a longer-term goal such as their college education, explain why. If you share your money or time with charitable organizations, let your children know your reasons and motivations. 

If you have adult children, tell stories and share about the struggles previous generations went through to create wealth to instill a strong sense of appreciation and work ethic in the younger generation. Your children should know what is important to you and understand that your money represents more than a number in a bank account.

Equip Them With Life Skills

Imagine if you were thrown in an airplane cockpit and told to fly a plane, with no training or experience. It wouldn’t end well. In the same way, if you don’t give your children the gift of financial literacy, a sudden windfall in a time of grief may result in poor decisions. 

From a young age, teach your children how to save, give, and plan for their future. Give them opportunities to invest, put money away for a future purchase, and contribute to things like a car or their college education so they learn that money has a purpose. As they get older, introduce them to your financial advisor so they develop a relationship with someone they can trust and someone they can turn to with financial questions. Teach your kids that wealth is not created overnight and that if you are lucky enough to have more than you need, you ought to steward it well. 

Be Open About Your Estate Plan

Many families draw up a will and other estate planning documents and then put them in a drawer, leaving the details to be discovered by family members after they have passed away. That can lead to unhappy surprises, or worse, it may lead to squabbling among family members. That’s why it’s important to let your adult children in on the details of your estate plan while you’re still able to discuss your wishes and adjust as needed. 

If one of your children is much more financially secure than the other and your giving reflects that, it’s better to explain your reasoning while you still can. Similarly, if you’re leaving substantial money to a cause or a loved one outside the family, let your family know now.

If your estate includes substantial hard assets (such as jewelry, art, or real estate) that are hard to divide evenly and may hold sentimental value, talk with your children about who may want the items or if it makes sense to simply liquidate them. These discussions can help limit disputes after you pass away and maintain family harmony. 

Consider A Trust

If you’re still concerned about how your children will use their inheritance, or if you’re also leaving money to younger family members such as grandchildren, consider setting up a trust. A trust can be a wise option to pass money down even if you’re not wealthy. Trusts can give you the power to pay out an inheritance over time instead of all at once, while a trusted third party oversees the remaining assets. There are a variety of trusts designed to help you give to a charity, to your spouse, or your grandchildren with protections built in to reflect your wishes. An experienced lawyer can explain all your options and help you with the details. 

Develop An Outside Support System

If you’ve spent decades building your wealth, you deserve to have a trusted team in place to protect it long after you’re gone. A financial professional can help bridge the gap between facilitating conversations with loved ones and putting together a strong financial strategy for sustaining wealth. 

At 1on1 Financial, we’re here to help you in as many ways as possible, from laying out your legacy goals to creating a holistic strategy to creating a financial plan across multiple generations. To find out more, call our office today at 909-981-1720 or simply click here to schedule a free 15-minute introductory phone call!

About 1on1 Financial

1on1 Financial is an independent financial advisory firm specializing in guiding working and retired professionals, executives, and business owners along the path to financial well-being. Founded in 1997, we use a team approach to help our clients accumulate wealth, generate income, preserve their life savings, and strategically plan for the distribution of their estate. With more than 50 years of combined experience in the financial services industry, we remain true to our fundamental mission: to provide personalized guidance, treatment, care, and service so our clients can gain control of their future and feel confident in their financial life.