A lot of wealthy parents — and many not-so-wealthy parents — are struggling with the same question: Should they leave an inheritance for their children?
Whether you should or shouldn’t is a personal decision that reflects your family values, your financial situation and a host of other factors. Only you know the answers.
But it is worth noting that in survey after survey, it’s clear that when it comes to passing money and other assets down from one generation to the next, many parents and their children have conflicting ideas and expectations. That could spell trouble in the here and now or 20 years down the road.
Consider these survey points:
• One in four people ages 18 to 59 expects to receive an inheritance sometime in life, according to a survey released last month by the Interest.com website. These are not necessarily Bill Gates-size bequests either — the median amount was $50,000 to $100,000, according to the survey.
Also noteworthy, the respondents said they planned to use the money to turn their financial futures around by paying down debt or beefing up retirement funds.
• From the parents’ perspective, U.S. Trust reported that one in three of the wealthy baby boomers it surveyed last year intended to give their money to charity rather than leave it for their children.
Among parents’ reasons are a belief that each generation should earn its own wealth and a feeling that they have sacrificed plenty already for their children. Intensifying the inheritance challenge is that people are living longer, leaving parents to worry that health care costs will outstrip their savings.
I would add one more concern: Many parents are afraid their kids will embrace a life of luxury and blow the money.
Lynn Mayabb has seen cases of dashed dreams, conflicts and family angst. She works with a lot of wealthy families as a financial planner and director at BKD Wealth Advisors LLC in Kansas City.
To avoid family conflicts about inheritance, Mayabb urges parents to have early conversations with their children about the family nest egg. It should be part of a regular process of teaching kids their financial ABCs.
The goal should be for children to become financially independent, regardless of whether they will be getting a chunk of money from their mom and dad.
“Educate and communicate,” Mayabb said.
I have heard this often and have said it myself many times, but so many misunderstandings and conflicts about money are caused by a failure to even put the topic on the table.
Granted, inheritance can be touchy. Parents may be uncomfortable talking about money and the particulars in their will because they’re worried about disclosing too many details or disappointing a child. Children may be fearful of coming across as greedy.
Mayabb suggests framing inheritance discussions around family values about spending, saving and charitable giving. If you place a high value on education, for example, it may be time to tell your high schooler that you will cover the tab for four years of college and that will be his inheritance. Period.
Do you divulge every detail of your will and key financials? No, Mayabb said. But at the very least, provide some realistic expectations about whether you intend to leave the kids any money or other assets — even if you think it will be years from now.
“It’s a terrible mistake not to tell them about your wishes and expectations,” Mayabb said. “But if your children know the reasons why or why not, they are less likely to question it and argue about it.”