Not quite the “birds and the bees” talk, but a conversation about money and death is just as important to have with your kids (and maybe a tad easier …).
Once you’ve cataloged your assets, prepared a will (you have one, right?) and completed your advance health care directive, it’s imperative to let your kids know your decisions and how they can access all your information and legal documents after you die.
While neither money nor death is a particularly fun topic, John Midgett, president-elect of the National Association of Estate Planners and Councils, says that, surprisingly, the talk with his son right before he left for college was “one of the most engaging and memorable conversations I’ve ever had with him.” After all, it’s hard not to talk deeply about, well, life when you’re discussing death.
Plus, “most kids just want to know that their parents aren’t going to be financially needy later in life,” Midgett adds, so this can be a very reassuring conversation for them.
Here’s what your kids need to know and how to tell them.
1. Time it right. “College-aged kids are generally ready to have this conversation,” says Karen Altfest, CFP, Ph.D., executive vice president of Altfest Personal Wealth Management in New York City. “Children mature at different ages and in different ways, but age 18 is a good kick-off point to help you figure it out.” If you were to pass away while your children were still minors, the guardians you named for them in your will would handle your financial affairs on their behalf.
And don’t just spring it on them at dinner—set up a specific time to speak to them so they’re not blindsided by the seriousness of the topic.
2. Create an estate planning document. Compile all your essential financial information into one file: bank accounts, retirement savings accounts, college savings accounts, life insurance, investments, trusts, real estate and businesses. Include account numbers, contact information and passwords for each asset. Also add the names of your estate lawyer, accountant, financial advisor and business partners. This “Rolodex on steroids,” as Midgett calls it, will make life for your kids so much easier after you die. “It spares them days of rummaging through your home trying to piece things together,” says Altfest.
3. Then let your kids know where to find it. The estate planning document can’t help your kids if they don’t know where it is. One solution that beats putting it in a box under your bed or keeping it as a file on your computer (for which your kids might not know the login ID and password): Keep a copy with your estate lawyer who can share it with your kids through a secure online portal after your death.
4. Don’t promise exact numbers. “Inheritance amounts can go up and down over time, depending on the market and your needs,” says Midgett. “If you tell your kids they’re getting a certain amount and they end up getting less, it can cause a lot of resentment.”
Instead, assure them that you will not need financial assistance from them (or that is your intention, anyway) and that your hope is to provide them with a gift after you’re gone. You can share an approximate value range, but you know your children best: How will the information impact them? Will they lose motivation in their own financial lives if they know about a future windfall, or will they use the information to wisely plan their financial priorities? This can help guide how specific you should be.
5. Beware the lottery winner syndrome. “Many people can’t handle inheritances,” says Michael Ettinger, principal attorney at Ettinger Law Firm in Long Island, New York. “I’ve seen the lottery winner syndrome happen too many times.” Sudden wealth syndrome, or SWS, is a documented phenomenon in which people are so overwhelmed by the influx of wealth that they engage in self-destructive behavior and soon lose what they had just gained. “If your child is younger and not used to handling money responsibly, this is a real risk,” he says. How do you combat this? Read on.
6. Create trusts. You can avoid SWS by setting your money up in trusts, which are like savings accounts that you can put conditions on. Want your child to get a set percentage of the inheritance every year instead of getting it all at once? Create a trust! Want to stipulate that your children can only receive their inheritance after they turn 35? Create a trust!
Trusts are also critical if you have a child with disabilities; funds in a special needs trust won’t disqualify them from receiving important government benefits including Supplemental Security Income and Medicaid.
7. Prevent future sibling conflicts. If you’ve made individual inheritance decisions for each of your kids, don’t wait until after you’re gone for them to find out. Have honest, compassionate discussions with them so that they don’t turn on each other later, says Ettinger.
If you’re giving one child more money than another, be sure you have a solid reason for doing so—for example, if one child has a lot of expensive medical needs or a disability that limits their earning potential. “If you don’t feel comfortable explaining your rationale,” says Ettinger, “it might be a good idea to revisit your decision.”
Explain, too, how you chose which child you want to be your executor (the person who carries out your will). Did you simply pick the oldest or did you draw straws? Did you select the child who works in finance over the artist? Whatever your reasons, share them with your kids. They may be peeved, but it’s better if they’re pouty toward you than forever angry at a sibling. As Ettinger says, “you have the power to keep your family together after your death through the financial decisions you make now.”
Patty Onderko is a writer and editor who has covered health, parenting, psychology, finance, travel and more for 20 years. She lives in Brooklyn with her wife and two sons.
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