What should I tell my family about my assets?
Ric Edelman is a co-founder of Edelman Financial Engines. The following is taken from his weekly radio call-in show.
Question: My wife and I are in our early 70s, and we have three children in their early 40s — all married — and seven grandchildren ranging in age from 3 to 14. We’re retired and have a substantial estate — a net worth of about $5 million. My question is what to tell our children about our assets. We’re generous to them and the grandkids, but I don’t want to say something that would cause our children to change their behavior. It’s not that we want to keep secrets, but what if anything should we tell them? Should we be specific or just give them general information? I don’t think we should discuss this with the grandchildren — at least not anytime soon. Do you agree?
Ric: First, we believe keeping secrets is unwise when it comes to estate planning. You should have an estate plan in place that does two major things: protects your assets while you’re alive and provides for their distribution to your designated heirs after you’re gone.
Estate planning tools are available to help protect you and the management of your assets should you and your wife become incapacitated or unable to handle your affairs. These include everything from medical directives to revocable living trusts. You should arrange for these now if you haven’t already. This is important because you and your wife are (actuarially speaking) going to live for many years. Statistically, at least one of you can be expected to live well into your 90s. That means your children who are currently in their early 40s will be in their mid-to-late 60s by the time you and your wife pass away.
Assuming your three children will be your primary heirs, this question arises: Will they need the money in their 60s as much as they need the money right now in their 40s? I’d argue that it is this stage of their lives when they need the money most. They’re raising kids, buying houses and cars, saving to send your seven grandchildren to college, and more. This likely puts them under a great deal of financial and emotional stress.
You should ask whether that stress could be eased somewhat if they were to know there is an inheritance coming one day. Perhaps they wouldn’t need to save as much for retirement knowing part of it will be covered by you. This could let them shift their savings to the kids’ college costs. Conversely, if your plan is to help pay for college for the grandchildren, your kids could shift their saving emphasis to retirement.
Thus, knowing your intentions — when you plan to give them money, how much and for what purpose — can help your children make mature, rational and important decisions. On the other hand, you must also evaluate whether they might change their behavior for the worse. Might the news prompt them to take off for Tahiti and party? Might they quit a job? Might they become slovenly or abusive, saying in effect, “Hey, my daddy’s rich, so I don’t have to work real hard anymore — let’s have fun”? Or perhaps one of your in-laws might say, “I think I’ll simply divorce now because I’ve got this windfall coming and I’ll just negotiate that in the divorce settlement. Or perhaps I’ll quit my job.”
You know these people better than anyone else. You know your relationships with them and your attitudes about them. You need to evaluate whether your disclosure would do more harm than good and whether you should limit its nature and timing.
You might conclude that what you and your wife disclose about your assets could have a positive impact, easing the stress and pressure of your children’s own financial planning to the benefit of them and your seven grandchildren. You might conclude otherwise. At the very least you need to let them know that you have your estate planning in place and what your desires are regarding your funeral and charitable intent. You need to tell them who the executor of the will is and who the trustee of the trust is — and the executor/ trustee needs a copy of your documents because after you’ve passed it’s too late for them to ask questions. You might also decide to start giving your heirs some money right now, or annually.
So, yes, have the conversation, but you and your wife need to evaluate to what extent you should go, how much detail to give and when you will do it. (I agree with you that you needn’t include young grandchildren.)
If this seems daunting — and it does for many — a financial advisor can facilitate this conversation. It’s not uncommon for clients to bring their kids with them to an appointment when they’re ready to talk. This can remove some of the emotion and embarrassment — yes, occasionally there is an embarrassment of riches.