Do you know what I hate most about my business? It is settling estates for my clients.
Often, there was little or no communication between parents and their children about money matters prior to estate settlement, so tempers flare between siblings when the will or trust is read.
This is why I encourage my clients to talk to their adult children about important financial issues. As parents grow older, they must eventually face the challenge of talking about wealth, inheritance and the financial implications of their mortality. I agree that sometimes these subjects are not comfortable to talk about. Many parents put it off because they think they have time, or they feel that it is not the children's business. This can be a mistake.
Communicating openly with your kids won't solve every problem. But it sure can minimize surprises and conflict, and provide the parent with more options to educate and empower his or her children to act on his or her behalf. Open communication can also help prepare your children to become responsible inheritors. So often I see an estate squandered on material goods and not put to good use long term.
For many parents, the key question is how and when to begin the conversation. The parent does not need to stage an "inheritance intervention." Think of some relaxed, shared activity, such as walking, golfing, baking or quilting to test the waters. Bringing up financial matters in a less-threatening way can diffuse some tension. Try to avoid talking about finances during busy or emotionally demanding events, such as family holidays.
You may be thinking that you don't really need to talk to your children because such discussions are just for the very wealthy. Regardless of your net worth, experts say that annual family meetings can help the parent create a comfortable forum for discussing their values, priorities and goals related to managing money.
Family meetings also enable parents to clarify their intentions related to any possible misunderstandings that might arise from splitting up their estate. This is especially important when remarriages and second families are involved, or when parents want to name charities as beneficiaries. I have seen things get pretty ugly when such surprises occur after a parent dies. If there are no surprises, you may avert a legal battle later.
Begin your family meeting with the basics. You should identify your executor or successor trustee, and outline where you will keep your will or trust and other important documents. Although it's not important that everyone know all the details of your finances, it is imperative to make at least one family member aware of the location of your important records.
Some specific issues you may want to discuss at your meeting or with your executor are durable power of attorney and power of attorney for health care. Let someone know if you have a safe-deposit box, where it is located and where you keep a key.
Does your retirement program have a death benefit for survivors? How do you plan to handle estate taxes if they are applicable.
Provide the names of your financial advisor, accountant and attorney. I like to meet with and get to know the beneficiaries/children of my clients before we settle an estate. That way, I am able to answer key questions that the children may have about their parents' estate/finances.
This is done only with the permission of the parent or having the parent present, but it can often be a comfortable venue for having that family meeting.
Talking to your adult children about money is also a way to talk about values. When you use the approach I mentioned earlier about meeting with a trusted financial adviser, the advisor can help the children understand their financial options and encourage them to make choices that support their long-term interests, such as retirement planning or education funding for their own children.
incentive trusts
I often see adult children who have not adequately saved for their own retirement, and I am quite concerned about this.
Many parents these days are using trusts to transfer assets to their children and grandchildren. There are many benefits to using a trust to transfer assets. One option for parents seeking to influence their children is the incentive trust, which enables parents to establish terms governing the distribution of funds.
An incentive trust can provide financial motivation for adult children to excel and meet certain goals. You want to provide positive incentives and try to avoid adding too many constraints. Your attorney can advise you on different types of trusts and how they might work for you.
Regardless of how your plan to transfer your estate, raising children who have responsible money habits is always a plus. Of course, as we all know, it does not always work out that way.
• Carol Perry, a Northern Nevada resident since 1983, represents the firm of Wachovia Securities in Carson City. Call 841-4277.