En español | About $30 trillion. That's the amount of money boomer parents — i.e., you and me — are expected to leave to our millennial offspring over the next 30 to 40 years, according to consulting firm Accenture. That number will rise or fall depending on many factors, including the economy, the markets, how long we parents live and so on.
Whichever way the tide flows, it's likely to be a considerable chunk of change. And that means if you're among those leaving a tidy sum to those you love, you want to do it right. Here's how.
1. Manage expectations with open communication. A recent survey from Fidelity Investments showed that adult children underestimated the value of their parents' estates by a tidy $100,000. Granted, that's likely better than if they'd been off by a million, but having some sense of where you stand and what they're likely to receive as a result will put their minds at ease.
That doesn't mean you need to spread your financial life "out on the kitchen table," says Detroit area elder law attorney Mark Accettura. "Estate planning is not a democratic process. It's really the parent's wishes," he says. Parents should give kids a basic sense of where they stand financially — always noting that the situation can change if more money needs to be spent on their own medical care — as well as clear instructions about whom to contact and where important papers are kept.
2. Level the playing field. One of the most frequently asked questions by anyone leaving an inheritance is whether they have to treat the kids equally. Experts say it certainly helps.
"If you want to minimize fighting, leave it as equal as you possibly can," says Accettura. That applies not just to assets but also to responsibilities for settling your affairs. "When parents appoint responsibility they're making a statement as to who is worthy, capable, who they trust. It's a final statement and it's irrevocable, so it's important to be concerned about people's feelings." He suggests that anyone who has any level of capability should at least have a small role.
3. Do the distributing yourself. Leanna Hamill, a Boston-area estate planning attorney, has seen parents with, say, a $200,000 life insurance policy name their oldest child beneficiary and trust him (or her) to divvy it up among the siblings. Big mistake.
"If you want all siblings to inherit equally, put them all down as beneficiaries," she says. Moreover, if you have jewelry, art or other items to bequeath, leave a list of who gets what, along with a method for dividing up whatever is left so that people can take turns calmly.
4. If you distribute unequally, explain yourself. There are reasons parents do this — perhaps one child earns significantly more than another, and therefore needs less — but it can lead to resentment, which is why, Hamill says, many people avoid talking to their kids about inheritances in the first place. At the very least, write a note to go with the will, she says. "Leave something that says, 'I love you all equally. Here is why I am doing the distributions the way I am.'"
5. Use a trust to eliminate uncertainty. If you want to make sure your children use the money wisely, consider putting it in trust with a few strings attached. Many estate planning attorneys recommend distributing the assets in chunks (typically one-third at age 25, one-third at age 30 and one-third at age 35).
The thinking is that with maturity will come better financial decision-making. You can also include a provision that if your child is going through some sort of substance abuse problem at that time, the distribution can be held to a later date.
But Hamill cautions against using what's called an incentive trust. These documents stipulate that your heirs inherit only if they've jumped over a particular hurdle. A trust might say Joe can have half of his inheritance when he graduates from college. But what if he goes to culinary school? Does that count? "It can lead to the beneficiary suing the trustee to interpret what the trust meant, and wasting a lot of trust assets on a suit," she says. "I'm not a fan." — With Arielle O'Shea
Jean Chatzky, AARP’s financial ambassador, is a best-selling author and an award-winning personal finance journalist.
Discounts & Benefits
Next ArticleRead This