It’s hard to talk about money—even within the most close-knit of families. “Parents would rather talk to kids about the birds and the bees than money,” said Brad Klontz, Associate Professor in Financial Psychology at Creighton University. Because everyone keeps mum on the subject, “we don’t have role models for how it’s done. We don’t develop the needed language and we don’t know how to express those experiences.”
Whether we’re worried that we don’t have enough, ashamed that we have too much, or simply want to postpone an uncomfortable conversation, it’s easy to assume that there’s plenty of time left to talk it out with our loved ones. We’ll do it later, we tell ourselves.
Except, for many families, later comes sooner than expected, and unspoken wishes can lead to grave misunderstandings and important financial matters left unsettled, despite the best of intentions.
Why We Need to Talk About Our Inheritance Plans
Even for those leaving a modest windfall, the potential for misinterpretation can be severe.
Start with the emotional legacy you want to leave, Klontz urges. “It’s probably one where your kids love each other and think fondly of you,” he said. “If you don’t have this conversation and if you’re not clear about your intentions, your kids could walk away with a very different message.”
Say, for you, an equitable distribution means leaving less to your financially secure child and more to the one with an uncertain future. “If you don’t tell your kids why you’re making that decision, they may make their own assumptions,” said Klontz. “Often, the typical assumption is that you loved one sibling more than another.”
That’s the kind of misunderstanding that can fester for a lifetime.
The good news is that an up-front conversation about a legacy plan—and the decisions that went in to making it—are often more welcome than we might imagine. “As you age, it’s something that your kids will be thinking about,” Klontz said. “You may even relieve their anxiety by initiating the conversation with them.”
How to Start the Conversation (and How Much to Share)
End-of-life planning is about more than just who will be the beneficiary of your IRA or life insurance policy. “Your heirs need to know what you want to happen if you become incapacitated or fall ill,” said Klontz. “Ideally, discussions about money should start as early as your children are cognitively ready to understand what’s happening.”
Of course, young children may not have the emotional maturity to process complex ideas—like the eventual death of a parent—but conversations can and should get progressively more sophisticated as children age. “Three years old is not too early to start having rudimentary money talks,” said Klontz.
Still, there’s a fine line between sharing enough and sharing too much information. When it comes to the details of a potential inheritance, “keep the details vague,” Klontz suggests. Financial markets fluctuate, career plans stagnate, and unexpected expenses arise.
“You may need—or just want—to access those funds later,” he said. You may borrow against or cash out your life insurance policy. You may deplete your IRA. “The goal behind those investment vehicles is to give you options. You get to decide how to spend down your assets and how much to leave to your heirs.”
When you’re ready to formally discuss your end-of-life plans, Klontz suggests setting a family appointment. “Don’t do it in passing. Don’t spring it on them over Thanksgiving dinner,” he said. A statement like, “We want to talk to you about our estate planning and some of our wishes and intentions,” can go a long way toward setting the tone for an important, yet intimate conversation. If you’re not sure how to conduct the event, consult a third-party advisor like a financial planner, a clergy member, or a therapist—and you can also invite them to facilitate the discussion.
No matter how you stage the conversation, what’s most important is that your children understand and accept your intentions. That up-front understanding can go a long way toward preserving not just your financial legacy, but your emotional one, as well.