How to talk to family about inheritance
The barriers to such conversations vary but tend to revolve around longstanding beliefs that death and finances are inappropriate subjects for polite conversation, as well as parents’ fear of losing control over their financial autonomy.
Parents are not the only ones who are uncomfortable. Adult children may be nervous about raising the topic of their parents’ finances in fear that they may appear greedy, intrusive, or insensitive.
But families’ silence on these topics can lead to problems, not least of which is the potential for serious conflicts among adult children after their parents die.
Research from wealth manager Brewin Dolphin has revealed that 58% of UK adults find the subject uncomfortable and nearly a fifth said they shy away from it because they don’t believe they have enough assets to consider estate planning worthwhile.
Just 2% said they have discussed it with a solicitor and only 1% have done so with a financial adviser.
Carla Morris, financial planner at Brewin Dolphin, said: “Open communication is an extremely important way of avoiding conflict. An honest series of conversations could help your loved ones understand why you have made these decisions and could help to avoid arguments further down the line. Having an adviser in the room may enable a smoother discussion and ensure any technicalities are clearly explained to avoid any ambiguity.”
Here are Morris’ tips on handling the inheritance conversation.
Keep paperwork up-to-date
An incorrect or out-of-date will can scupper plans completely. A person who dies without a will is known as ‘dying intestate’. This can make sorting out their estate very complicated because the law decides who inherits the estate according to certain criteria called ‘intestacy rules’ rather than following the owner of the estate’s wishes.
If it’s not clear what assets the deceased had, or there are complex family relationships, this can make distributing the estate extremely difficult and a costly, lengthy affair with solicitors.
Have the conversation sooner rather than later
If you or your family members are reluctant to touch the subject at all, it’s best to approach it in a transparent but compassionate way. Ensuring all parties are clear on what their family’s wishes are in terms of the estate, as well as a broad understanding of what is most important to them and how everyone can be supported.
Leaving this conversation until someone is ill or it’s too late can cause huge amounts of stress and will not allow you the clarity of foresight and expectation management for all involved.
Cater for right now
With rising life expectancies, high care costs and end-of-life expenses, it is crucial to incorporate the potential for these into your estate planning. If you’ve given all your assets away and subsequently incur these unaccounted-for costs, the burden may then be on your children or benefactors to cover them.
Be open about your finances
If it is your estate being discussed, there are some additional factors that may make the prospect of having the conversation less appetising. For example, a child who has previously shown irresponsible financial habits, who may fritter away your legacy or become lazy and unmotivated as soon as they inherit. Or an incapacitated child who may not be capable of making informed decisions for themselves. A common source of grievances could be if one child is a much higher earner than the other and receives less inheritance.
The hardest part of communicating your plans is simply starting the conversation. A useful place to begin is by writing down your values and sharing these thoughts with your children. Go through your own experience with money and the factors that led to your wealth, such as disciplined spending and investment decisions. Discussing where the money came from can help your successors understand that their wealth and assets did not just happen by chance, and that they are being entrusted with an opportunity and should manage it responsibly.
Be transparent about your wishes
If one child is likely to inherit more than the others, it is imperative you discuss this early on. Often, family discord arises when children discover they will be receiving unequal shares after one’s passing, generally this can be avoided by communicating beforehand. You may want to invite a financial adviser to your family meeting to give you and your parents an impartial viewpoint and make sure everyone knows where they stand, and that relationships are not unnecessarily strained.
Consider gifting now if you can afford it
Many people wait until death before passing on their wealth. However, it could prove more tax efficient and personally rewarding to gift money while you are still alive. A financial adviser can also suggest where there may be opportunities to transfer some assets before death.
Discussing your estate plans before it is too late is crucial in making sure your wishes are met, and by planning now, you can ensure your assets are taken care of and will end up where you want them.