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PERSONAL FINANCE: Discuss your finances and your estate with your kids –

Much has been written on educating your children on how to responsibly handle money.  Several months ago, I discussed this topic, Prepare Your Kids for Financial Adulthood, in this column.  Today’s column is the flip side of that discussion; that is, what to disclose to your children about your finances.  For many of us, discussing our own finances, and our estate intentions, even with adult kids, can feel awkward.  However, it is my experience that delaying the discussion of our finances with our children is a mistake.

Although each family dynamic is unique, when I refer to children in this context, I’m referring to mature kids – say, college age and older.  At this age, I can assure you that your kids likely know more about your finances than you think.  And however uncomfortable this discussion may be for you, it will be less so for your kids. Your kids are savvy at researching pretty much anything online.  At a minimum, they easily can find the salary range for most jobs and professions; and Zillow will estimate the value of your house. You probably keep copies of brokerage statements and tax returns in files that they may have “accidently” come across.  As an example, I have a wealthy client who believed his college-age kids had no idea of their family’s wealth, although they’ve never flown commercial in their lives.  Talk about naïve!

It is important for you to have an open family discussion about your finances – and your kid eventually will find out anyway, likely without the benefit of your explanation and guidance.  I believe that your children should know the details of your estate plan, especially in connection with your dispositive intentions regarding inheritances (amount, timing, possible restrictions and conditions); perhaps ongoing responsibilities that may be asked of them regarding siblings; and possible philanthropic intentions.  They also should know if you are relying on them to assume future responsibilities related to your ancillary estate documents such as powers of attorney and health care proxies.  Also, as you may have decided that certain responsibilities may fall on some children and not others, discussing your thinking now will prevent their future speculation on matters of parental affection.

My advice is to structure the discussion in advance.  I suggest you consider covering several key points:

Financial Situation and Retirement Plans

You’ll want to discuss your overall lifestyle, retirement plans and how you intend to fund your retirement.   Do you intend to downsize, or relocate to a senior community?  I recommend that you be as transparent as your level of comfort allows.  The conversation also should include a broad discussion of your values, and the responsibilities, opportunities and expectations that come with inherited wealth.

Estate plans

Consider reviewing the details of your will, and any trusts that already have been created, or will be created under provisions of your will. As important, you should discuss the underlying reasoning for your decisions. These documents reflect your values and it’s important that your children learn of your choices directly, and have the opportunity to discuss them with you.

It is not uncommon for children to have unequal needs, and sometimes we may decide to treat our children unequally to reflect these differences, both during our lifetime, and through our estate plans.  Again, it’s important to discuss your reasoning for doing so.  It is unusual, and often inefficient, to have multiple children as co-executors and co-trustees.  It is better to discuss your choices now, rather than have them become subject to inaccurate, and sometimes hurtful, assumptions after your passing.

In preparation for this discussion, you may want to prepare a “letter of final wishes” that you can share with your children.  Preparing such a letter is always appropriate and helpful.  It can discuss funeral arraignments and provide a host of other information that will be extremely valuable to your family at the time of your death.  There are many online sample letters that you can use as guides.

Important Documents and Professional Contacts

To ease anxieties and the future administrative burden on your children at the time of your death, serious illness, or the normal aging process, you should organize your financial records, family documents, etc. and share their location (and passwords) to make for an easier transition.  It’s also important that your children know how to contact your professionals such as your attorney, accountant and insurance broker, who can be of assistance to them.

Having an open discussion with your children about your financial circumstances benefits both you and them.  As a parent, you gain comfort knowing that your kids understand your values and the basis of your decisions, and they gain useful information that will serve them now and in the future. Your children will appreciate your consideration.  Over the years I’ve received feedback from clients who have had these family discussions; they universally agreed that it was one of the most important conversations that they’d ever had with their children.

The author does not provide tax, legal, financial or investment advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, financial and investment advisors before engaging in any transaction.