Talking With Children About Significant Wealth Transfer 

Discussing a significant inheritance with your children, grandchildren, or other family members can be challenging. If you’re like most, you may not know where to start or how to approach the topic. However, you do understand how important it is and the impact it can have on their future, values, and life choices. Understanding the best way to navigate this topic can make the transition smoother and ensure your legacy endures. 

Consider how that discussion might evolve over time. What should it include at each stage? When children are young, inheritance conversations might be vague. But as they age, it may become more detailed and concrete—perhaps addressing specific aspects of their inheritance, such as trusts, investment strategies, and the responsibilities that come with significant wealth. A phased approach can help your heirs develop a solid understanding of financial management and can better prepare them to handle that inheritance wisely. 

You might also have concerns about how heirs will manage a sudden influx of wealth. If your children or family members are not aware of the wealth they stand to inherit, this could notably change their career choices. For example, if they were aware, they might decide to pursue a career driven by passion rather than necessity. Introducing the concept of wealth management early on could help someone make more informed decisions. 

Structuring the Inheritance 

Structuring an inheritance is a way to incentivize heirs. Trusts, for example, may be created to specify when and how funds are disbursed. For instance, you might want to release funds based on certain milestones, such as graduation from college. Trusts also provide protections for your heirs from creditors, bankruptcy and possibly divorce.   

When creating a trust, there are several decisions that will need to be made. For instance, you may opt for an independent trustee or appoint a family member. Including provisions for the removal and replacement of trustees can offer greater flexibility. A trust may address your heir’s potential needs and life goals, thus balancing financial support with encouragement for personal achievements. 

Non-monetary Considerations 

Estate planning delves beyond financial inheritance to include other assets, such as vacation homes, properties, and valuable collections. A good example of this is real estate. In this case, during discussions, consider whether your heirs want that property and the financial implications of maintaining it, such as real estate taxes, upkeep, and insurance. If one child lives on the west coast and another on the east coast, this may affect their willingness and ability to manage property. 

Important questions to discuss include: 

• Do your children want your vacation home? 

• Who will be responsible for real estate taxes and upkeep? 

• If multiple heirs will share property, how will it be managed and divided? 

• Would your children prefer to sell the property instead of inheriting it? 

• Are there sentimental or family traditions tied to the property that should be preserved? 

• How will distant children contribute to or benefit from that property? 

• What will happen to valuable collections, such as art, antiques, or jewelry? 

• How should proceeds from the sale of assets be distributed? 

• What are the tax implications of inheriting non-cash assets? 

Many of the complex decisions in estate planning require professional guidance. Attorneys, tax professionals, and financial advisors can help to navigate those intricacies. However, it is crucial that you ensure advisors address your specific goals and family dynamics rather than simply providing a generic estate plan focused solely on tax savings. Trustees play a significant role here since they can help in managing assets and making decisions aligned with your vision for your family’s future. 

Preparing for Emotions 

Beyond financial and legal considerations, estate planning might entail emotional and relational aspects. Ideally, inheritance conversations with children and family members should be open and ongoing to avoid misunderstandings and to ensure everyone is on the same page. That said, different generations likely have a varying approach to their openness about money. It is not always an easy discussion for those who were raised to never discuss money. Not only is it common for one partner in a couple to avoid financial involvement, but children may also differ in their approach, knowledge, and interest in managing finances. For a smooth transition, it is crucial to talk through your situation in advance with support from your team and to rely on your team to help open those conversations up.  

How We Help 

Talking to your children about significant wealth inheritance is a multifaceted process that requires careful planning and consideration. AAF Wealth Management is here for you when you are ready to talk through the various aspects of wealth transfer. Because the federal estate tax exemption is set to decrease to an estimated $6 million by December 31, 2025, proactive estate planning is more crucial than ever.  

AAF Wealth Management urges clients to consider that this process can be lengthy and complex, requiring the assistance as appropriate of valuation professionals and attorneys. As the deadline approaches, demand for those services will increase, potentially raising cost and limiting availability. We advise that clients begin their estate planning process early to avoid a last-minute rush. 

By addressing both the financial and emotional aspects of wealth transfer, you can ensure a smooth transition and help heirs prepare for their future responsibilities. Engaging professional advisors and involving your children during these conversations will help pave the way for a legacy that aligns with your family’s values and goals. 

If you have questions, please contact Daniel Seaman, CPA, Tax Partner at 774.512.4025 or dseaman@nullaafwealth.com, Joshua England, LLM, Esq., Partner & Tax Attorney at 774.512.4109 or jengland@nullaafcpa.com, Carmen Grinkis, PhD, CLTC, CLU®, CFP®, Co-Managing Partner & Wealth Advisor at 774.512.4061 or cgrinkis@nullaafwealth.com—or your AAFCPAs Partner.