We’ve heard about the Great Wealth Transfer and how all those years of saving and investing by Baby Boomers will benefit the next generation. It’s generally assumed that parents who have a nice nest egg will leave the majority of that wealth to their children as an inheritance. But that’s not always the case.
Some wealthy retirees may choose to buck tradition and leave a different kind of legacy, one that supports their community or other charitable causes they care deeply about. Or, some might simply plan on enjoying the money they’ve made by spending it on travel, entertainment or other hobbies. It is their money, after all.
No matter how your clients choose to distribute their estates, it’s best for them to manage their children’s expectations sooner than later. The following approaches can help.
No one likes surprises. If your client discusses alternative beneficiaries during one of your meetings, it’s important to ask whether they’ve been as forthright with their children as they’ve been with you. No doubt, finances are a delicate topic, and discussions with children about final wishes and death can be difficult. However, it’s in everyone’s best interests to forego any assumptions.
Is your client fearful about how children might react to news that they won’t receive an inheritance? It’s possible, yet a client may be pleasantly surprised to learn how understanding and supportive their children might be. Regardless of how the conversation goes, consider suggesting that your client provide children with enough funds to cover any final expenses, such as funeral costs, to alleviate financial burdens during a time of grief. The results of such conversations between parents and children might surprise you, and it may just open the door for deeper, more meaningful relationships.
Setting up an estate plan involves multiple documents, which likely include a will or trust, beneficiary designations, letter of intent and more. Taking an inventory of physical and digital property is another step toward getting affairs in order.
One of the most crucial steps is determining who will be the durable power of attorney and healthcare power of attorney. These individuals will be responsible for carrying out your client’s wishes in the event they’re incapacitated or upon death. Adult children sometimes assume these roles, emphasizing the importance of a client letting them know their intentions for how money will be distributed once they’re gone.
Attitudes toward a charitable cause may shift over time, or a child’s financial status may make a turn for the worse due to no fault of their own, causing a parent to rethink their plans. It’s natural to want to revisit past decisions to align them with current realities. As such, an estate plan that was drafted several years ago may no longer reflect your client’s wishes.
As part of a client’s yearly review, be sure to check in with them regarding whether circumstances have changed. When that happens, it’s important for your client to ensure any changes to an estate plan aren’t put off and that they’re properly documented.
A Combined Approach
Parents who want to leave the majority of their wealth to a charitable cause or other beneficiary while still extending a hand to their children may want to consider gifting an amount to them now rather than later. That way, parents get to enjoy seeing their children benefit from their hard-earned money rather than wonder what might happen to it after they’re gone.
A maximum of $15,000 per year can be gifted to another person without paying a gift tax to the IRS, and married couples with joint ownership of property can give up to $30,000.1 Talking with adult children about a combination approach that involves gifting them now along with designating other beneficiaries in an estate plan may be a welcome conversation.
Ultimately, your clients’ retirement savings are theirs to do with as they please, and how and when they communicate with children about their intentions is up to them, too. As their advisor, you can encourage them to have those difficult conversations and guide them through their decisions to ensure their wishes are carried out.
Find more helpful tips and insights about estate planning and different generations’ attitudes in our guide, The Great Wealth Transfer: Strategies for Strengthening and Expanding Client Relationships. Just click the link below.
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™
Marshall is CUNA Mutual Group's Advanced Planning Expert and has more than 25 years experience in the insurance and financial services industry. He consults Financial Advisors on advanced retirement planning concepts for retirement and wealth management clients.
1 Internal Revenue Service, Frequently Asked Questions on Gift Taxes, January 16, 2020