Have you had the 'money talk' with your parents?
06/29/2024 23:43
Between now and 2045, an estimated $84 trillion will be passed down to heirs. Yet only a quarter of Americans have had “the talk” about how that wealth will be passed down.
Talking about money is fraught with emotion. When it comes to family conversations, it can be downright uncomfortable.
However, for many Americans who are likely to inherit wealth starting now, the time to keep quiet is over.
What’s considered to be the greatest transfer of wealth from one generation to the next in history is underway. Nearly half of Americans plan to leave an inheritance, with 45% of those planning to leave it to only their children and 36% planning to leave it to both their children and their grandchildren, according to research from Edward Jones.
Between now and 2045, an estimated $84 trillion will be passed down to heirs. The bulk of those assets, more than $53 trillion, will be transferred from baby boomers to their children. Those in the silent generation — between the ages of 78 to 96 years old this year — will transfer $15.8 trillion.
Yet only a quarter of Americans have had “the talk” about how much and how that wealth will be passed down.
“Talking to aging parents about their affairs is a stressful, awkward experience for virtually everyone,” Liz Davidson, CEO and founder of Financial Finesse, told Yahoo Finance.
And many children are simply in the dark about their parent’s finances.
“Similar to most millennials, I have no clue about the wealth of my baby boomer parents,” Brian Sozzi, Yahoo Finance's executive editor, wrote in a recent column. “Like, zero idea. None. Zilch. Nada.”
There are many reasons parents are reluctant to share this information with their children, starting with a wall of privacy many people have about disclosing their wealth. Some parents worry that if their kids know what’s coming, they will lose their ambition. Plenty of retirees want to be sure they have enough money for their own lives, given the rising cost of healthcare and other living expenses, along with longer life spans.
“Most clients do worry about having enough wealth themselves,” Eileen O’Connor, founder of Hemington Wealth Management, told Yahoo Finance.
Learn more about high-yield savings accounts, money market accounts, and CD accounts.
But if you can crack the door to this family conversation, you might be surprised to find that many parents are leaning toward passing along some wealth while they are still alive and eager to talk.
“More and more clients are opting to make wealth transfers to their children while they are living instead of waiting until they pass because they can enjoy seeing the impact of their gifts when the kids need it most,” O’Connor said.
Of course, it can take some tap dancing to get the conversation going.
Here are four opportunities that can be a springboard to “the talk.”
1. When parents are downsizing, or health problems come up
Many of these parent-child discussions don’t start until the parent is about 70 or a health crisis hits, David Peterson, head of advanced wealth solutions at Fidelity Investments, told Yahoo Finance.
But sooner is better.
One side step into the conversation can spring up when your parents are going through their home, maybe even the one you grew up in, to decide what to keep and what to give way.
You might, as my brother Jack did, point out a special object that is meaningful to you. In his case, it was a striking grandfather clock in our parents’ living room. He asked about when they bought it, or if it had been passed down from another family member. It was an icebreaker that gradually segued into other money discussions as they took stock of what they had accumulated.
“I suggest clients open up a discussion with family members around wealth transfer with non-financial questions,” Danielle Howard, a certified financial planner with Wealth By Design in Glenwood Springs, Colo., told Yahoo Finance.
“Wealth is much more than money, and if we can have families start with questions like ‘What does legacy mean to you? How do you want to be remembered? What values do you want to see live on in our family'?
“Giving families the opportunity to hear stories about what their idea of true wealth is, we can then unpack the financial dynamics. If we don't have the values conversation ahead of time, there will be a disconnect,” Howard said.
2. Holiday gatherings
A happy family gathering can prompt an opportunity in an off-the-cuff way.
Bring up your first memory of a money lesson your parents taught you. It can be a funny and light-hearted recollection, but it can spur a conversation with a touch of vulnerability and shared experience and honor them at the same time.
3. Your financial or estate planning
Another way to wedge open the discussion is if you are working with a wealth manager. Tell your parents about the process, what excites you about it, and how you are building a holistic financial plan for yourself and your family.
“While it can be very difficult to broach the topic related to the entire estate, conversations often start with higher education planning for the grandkids, a great segue to a broader conversation,” O’Connor said.
Another angle in: “Chat about how you’ve met with a lawyer to draft powers of attorney for financial and health situations so that someone, say, your spouse, can handle things if you’re ever in a situation in which you can’t make those choices yourself,” Peterson said.
Then ask your parents what protections they have in place. “Or you might casually toss out that you’ve read recently about how important it is that kids have access to their parents' personal finance information in case they ever need help managing their money,” he added.
4. Formal family meeting
Some families might be most comfortable having a formal family meeting with someone who is impartial.
“Proactively talking to your parents about this issue in a safe setting, ideally with the help of a financial coach or other third party, can significantly reduce stress and friction and prevent major ruptures or falling out due to differences of opinion or miscommunications,” Davidson said.
You might open the agenda by pulling a word from a jar, and then each person discusses what their word means to them. The word might be “legacy” or “wealth.” It can evolve into impromptu reflections that can be humorous, passionate, or vulnerable, setting the stage for the nitty-gritty to follow.
“An intentional meeting in a space without distractions will allow the conversation to flow better than one that starts in the heat of the moment,” Davidson said. “Children need to truly listen to what their parents want and what they might be afraid of.”
This conversation doesn’t start and end in one sitting. You’ll need to have periodic check-ins.
If your parents are open to it, discuss where they keep vital documents, such as the deed to their home, tax returns, wills, trusts, and powers of attorney, Peterson said.
Get a list of their bank and investment accounts, insurance policies, credit cards, passwords, as well as contact information for their doctors, accountant, attorney, mortgage company, financial planner, and brokerage firm.
If your parents are retired, you might ask about various income streams such as a pension, Social Security, and IRA withdrawals. Make sure to store these documents in a safe place, such as an attorney’s office or a safe.
“It’s not necessary to know specific details for every account,” Peterson said, “but it’s important to know its existence with instructions on how to access them, including any safes, for when there may be a need.”
Read more: What is the retirement age for Social Security, 401(k), and IRA withdrawals?
What the transfer might mean to your financial planning
Once you have an idea of what lies ahead for your own inheritance, take it slow. You can begin the process of talking to your own financial adviser about what that might look like, and when a transfer might happen. You and your adviser should review tax planning issues and discuss how inheritance works into your overall financial blueprint — where it fits in a diversified portfolio as well as your personal financial dreams and goals.
My husband and I had this talk recently with our new advisory team about how we would want to transfer assets and to whom. We aren’t there yet, but our meeting put the issue on the table and top of mind for us and spurred an interesting conversation to be continued with our nieces and nephews.
Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including "In Control at 50+: How to Succeed in The New World of Work" and "Never Too Old To Get Rich." Follow her on X @kerryhannon.
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