One of the most common times that people update their estate planning documents is when their children have graduated from college. They will consider if they wish to remove parents or siblings as their successor executors and agents and start naming their children instead. If you do this, it opens up the question of whether you should discuss your estate plan with your children. Then, if you decide you should discuss your estate plan with your children, when you should do it, and to what extent?
Will You Wish to Change Your Estate Plan in the Future?
Before you discuss your estate plan with your loved ones, consider how much you think you will want to change your plan in the future. Perhaps you wish to name Child 1 as Executor, but in the future you think that Child 2 would be better for that role. Maybe you are debating whether to leave your estate equally to your children or give one more.
One of the biggest reasons to avoid discussing your estate plan with family members is that you may wish to change the plan. In other words, if you believe that communicating your estate plan now would hinder your ability to update it in the future because it might cause conflict within the family, we would recommend holding off on advising your loved ones of your estate plan until a more appropriate time. Instead, consider just letting them know where to find important paperwork should something happen to you.
Major Reasons to Discuss your Estate Plan with Your Loved Ones
As long as you do not wish to make any major changes to your estate plan in the future, and as long as your loved ones are old enough and sophisticated enough to have an intelligent conversation about the topic, I believe that there are at least 7 major reasons why you should discuss your estate plan with your loved ones:
- Your children may have important information that you need to develop your estate plan;
- It can help to mitigate future disputes;
- It can help your loved ones to navigate a complex plan;
- It allows you to address expectations and how to deal with concerns of indolence (poor savings and saving habits);
- The conversation provides you an opportunity to educate your loved ones about financial literacy;
- You can cultivate a culture of philanthropy; and
- Your estate plan is more likely to be carried out the way you want if people know what you want!
Your Children May Have Important Information That You Need to Develop Your Estate Plan
One of the best reasons to discuss your estate plan with your children is that they may have important information that you need. Many people are reluctant to discuss their troubles. If your child is having a difficult marriage, or being sued, or has concerns that their own children may have special needs, they might not wish to trouble you with their problems. Another possibility is that they may have accumulated far more wealth than you may realize. The more information that you have, the more you can make intelligent decisions regarding HOW you leave your inheritance to your children.
While you and your child may be uncomfortable having a very open discussion about their issues, if you have a good relationship with your child, there is usually no harm is asking something like, “Is there any reason that I should set up a trust for you rather than giving you your inheritance outright?” or “Do you mind if we have a conversation together with my attorney about the pros and cons of setting up a trust?”
Mitigating Future Disputes
Throughout my career, I’ve witnessed numerous estates embroiled in contentious litigation due to inadequate communication from the deceased regarding their testamentary intentions. This issue becomes particularly pronounced in cases involving unequal distributions among heirs or individuals who have entered into multiple marriages.
Transparent communication about inheritance can serve as a cornerstone for preserving familial harmony and fostering trust among family members. By openly discussing their testamentary intentions, parents can mitigate potential misunderstandings and preempt disputes among heirs.
Furthermore, by promoting transparency and fairness in the distribution of assets, parents can demonstrate their commitment to upholding familial values and promoting unity across generations. This, in turn, can strengthen family bonds and cultivate a legacy of mutual respect and cooperation.
Conversely, as children mature, withholding information becomes increasingly unwarranted, barring exceptional circumstances such as medical or psychological concerns. Moreover, in cases where a departure from conventional inheritance practices is anticipated, crafting a personalized letter elucidating the rationale behind one’s decisions can help dispel potential misunderstandings.
Obviously, not a families are equal. In some situations, if you discuss your estate plan prematurely, it can open up a hornet’s nest of problems. So this particular reason can definitely vary from family to family.
Navigating the Complexity
Estate planning entails a delicate balance between disclosure and discretion. While divulging intricate financial details to a young adult may not be advisable, providing general insights, such as the existence of trusts for specific family members, can promote transparency without overwhelming the recipient. Moreover, as your wealth grows, it is also likely that the complexity of your estate plan grows to include various types of trusts.
Additionally, keep in mind that full disclosure may not always be necessary. An age-appropriate conversation can help foster understanding and prepare heirs for the future.
What’s in Your Will?
The simple question, “What’s in your Will” could really lead to a larger conversation that you aren’t using a Will to accomplish your estate planning goals. Perhaps you have set up a revocable living trust, an irrevocable life insurance trust, a special needs trust, or some other type plan. If you are putting one of your children in charge of a trust, it will really help them know what to look for so that they can manage them appropriately.
Tax Planning
Let’s face it, tax planning is incredibly complex. the more you discuss your estate plan with your loved ones, and the better they understand the plan, the more likely they will be able to capitalize on the tax planning that you have done. According to this recent article by the Tax Foundation, tax complexity costs US Taxpayers over $545 Billion Dollars per year.
Addressing Concerns of Indolence
A common apprehension among parents is the fear that disclosing a substantial inheritance may lead to complacency or a lack of motivation in their children. In response to such concerns, I advocate for a proactive approach that empowers parents to set conditions for inheritance.
By communicating the option to redirect assets to charitable causes in the event of underperformance, parents can leverage financial incentives to encourage responsible behavior among their heirs. It is essential, however, to exercise fairness and equity in these arrangements to prevent resentment among siblings.
Furthermore, even if you do not discuss your estate plan with your children, most of them will likely have an idea of your overall wealth anyway based upon the size of your house and the types of vacations that you take. Accordingly, having a conversation can set the stage for a tough love conversation if necessary – such as, “Unless you start getting your act together, anything I leave to you will be held in a strict trust!”
Fostering Financial Literacy
Beyond the immediate implications for inheritance, open dialogue about financial matters can foster a greater sense of financial literacy among heirs. Engaging children in discussions about estate planning not only demystifies the process but also instills valuable lessons about responsible money management and long-term financial planning.
Moreover, involving heirs in the decision-making process can provide them with a sense of ownership and responsibility regarding their future financial security. When you discuss your estate plan with your children, you impart them with your knowledge and guidance. Accordingly, a healthy discussion allows parents to empower their children to make informed decisions and navigate the complexities of wealth management with confidence.
Cultivating a Culture of Philanthropy
In addition to addressing concerns about indolence, open dialogue about inheritance presents an opportunity to instill philanthropic values in future generations. By involving heirs in discussions about charitable giving and legacy planning, parents can nurture a culture of generosity and social responsibility within their family.
Encouraging children to consider the impact of their inheritance on broader societal issues can foster empathy, compassion, and a sense of purpose beyond personal wealth accumulation. By incorporating philanthropic goals into their estate planning strategy, parents can leave a lasting legacy that extends far beyond financial assets.
Your Estate Plan Is More Likely To Be Carried out Properly if You Discuss Your Estate Plan With Your Loved Ones.
It may seem obvious, but the more you discuss your estate plan with your loved ones, they more likely they are to actually follow your wishes. In many instances, documents will have typographical mistakes. Alternatively, there could be some confusion regarding your goals, such as whether or not someone is allowed to stay in your house after you pass away. If you advise your attorney and your loved ones of your intentions, then these mistakes and issues can be better addressed when you are no longer able to speak for yourself.
Furthermore, as we age, we all need a little more assistance. If you make it easy for your trusted executors and agents to pay bills, move money around, and fund trusts on your behalf, it can reduce the time, administration, and costs involved when you pass away.
Conclusion
In conclusion, the decision to disclose inheritance plans to one’s children is a multifaceted issue that warrants careful consideration. While respecting individual preferences and family dynamics, prioritizing open communication can mitigate future conflicts and facilitate a smoother transition of assets.
Transparent communication when you discuss your estate plan can help prevent potential conflicts, minimize taxes, and ensure clarity in the distribution of assets.
Ultimately, fostering transparency and clarity in estate planning not only promotes familial harmony but also empowers heirs to make informed decisions about their financial future.
Working with a competent estate planning attorney when having these discussions can also help facilitate the process. The estate planning attorneys at The Pollock Firm LLC are available to assist you when you decide to discuss your estate plan with your loved ones.
