Multi-generational family gathering

How to prepare your children for a family inheritance

Three family estate planning challenges and ideas on how to overcome them.

If you’ve spent your lifetime building your family’s wealth, the last thing you want is to watch it squandered away. But sadly, that’s a reality for many American families. According to The Wall Street Journal*, more than 90 percent of a family’s inheritance evaporates by the third generation.

Parents face multiple challenges when planning on how to divvy up their estate, but very few actually have an adequate succession plan in place. In fact, experts estimate that parents’ failure to discuss financial matters with their heirs could very well be a leading factor in the mismanagement of inherited wealth. Many heirs are simply woefully unprepared for the challenge of managing a sizable family inheritance.

Some ways to help future generations manage the family inheritance are to educate them and to set up a plan for the distribution of your estate.

Here are three common challenges when it comes to estate planning and ideas on how to overcome them.

Avoid raising entitled children

Most self-made millionaires will try and teach their kids the value of a dollar and the importance of a hard work ethic. But it can be difficult for children not to feel a sense of entitlement when they know they are set to inherit a sizable estate. How do you teach your kids to value and respect the family inheritance and the responsibilities that come with it?

It’s important to keep an ongoing open dialogue with your heirs so they’re aware of what’s expected of them when it comes to managing the family estate. Force yourself to break through the difficulty and uneasiness that accompanies “talking about money,” and teach them that this is an important role – one that’s full of responsibility.

Consider holding family board meetings, a “state of the estate,” if you will, where you openly discuss money, what it means to them and how they plan to manage it in your absence. During these discussions, you can make sure to instill in them your own personal values, such as the importance of charitable giving. A family foundation or donor-advised funds can provide children with an understanding of how others will benefit from giving and help them become more community-oriented. Involving the whole family in the donation process can not only teach collaborative and consensus thinking, but instill the importance of an open communication process.

Consider adding an objective third party that can help guide them through this process. Being proactive in discussing the family inheritance with your heirs can help ensure that the family’s estate is successfully preserved.

Splitting the wealth among heirs

Parents all like to believe that we love and treat our children equally. But every parent will tell you that the kids are not the same, and each one has a set of different needs. How do you split the family wealth when one child needs more than another? Do you have a special needs child that may require more long-term care in your absence? Do you allocate more to your daughter who has four children rather than your son who only has two?

Pitting one child against another can lead to resentment. Help work your way through this uneasy issue by making your estate plan flexible, and communicate to your kids the reasoning behind your decisions. With a flexible estate plan, you can revisit decisions based on children’s needs and financial successes or failures.

What’s the best way to distribute the family inheritance?

Finally, how do you actually ensure your family’s wealth will last? Do you give them the family inheritance in a lump sum or in a family trust with an extended distribution? Sometimes making these decisions on our own, without proper financial education, can be difficult.

Choosing a trustee to help with the distribution of your estate can help ensure your wishes are carried out, and a trustee can offer guidance to your heirs when you’re no longer able to do so. Based on your needs, you can choose between a corporate entity or individual trustee.

Contact us to revisit your estate plan and help you make sure your heirs are adequately set up to manage the family inheritance with success.

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