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Clients' Financial Relationships With Their Kids

Communication is essential to building the foundations of your clients' futures.

Your client's relationship with their kids around finances can be fraught with a host of complicated emotions—anxiety, fear, resentment. And those emotions can be more acute when they consider the possibility of talking to their kids about what happens to the money when they are gone. What happens to tangible assets with sentimental value? How will natural children and step-children be incorporated into the plan? Will children who have made responsible decisions and children who have made questionable decisions be treated the same? How much will be given to charity instead of being given to the children? These are tough questions, and the thought of talking about them with adult children is often intimidating. According to a recent survey, 47% of parents agreed to have missed opportunities to talk to their kids about money and finances. Most people simply don’t know where to start, so they simply don’t. 

However, avoiding or overlooking these conversations about what happens to the assets when you are gone can also be surprisingly destructive. A client's estate documents, and the plans enacted within them, may be the last communication that your client's children and other beneficiaries receive from them. If children develop misaligned expectations for what will happen to the money when your client is gone and are surprised when the plan is revealed, they are more apt to question your intentions toward them or to question your relationship with them. And they are more likely to act out and challenge the terms of the trust or will—often straining relationships with one another in the process.   

Financial advisors should work with their clients to develop a proactive communication plan that gives the kids the appropriate amount of information at the right time, while also clarifying motives around key decisions. The plan should address issues regarding how much to disclose, when to disclose, and to whom (e.g., should spouses be included in the conversation?). Putting together a thoughtful plan takes intentionality and effort, especially when the answers to these questions are complicated by common factors, like relationships that are already a little strained or children who are still maturing. A good communication plan can foster conversations that are a springboard for real connection and sharing between parents and their children.

How much money should you leave for your kids?

The first step toward having a good communication plan is having a good estate plan—one that makes sense for your client's family, and all of its personalities and complexities. Basic to this plan is a decision about how much to leave for the children and how to structure the assets that are left for them.

When an individual passes away, there are usually three options for what happens to their assets: They go to charity, they go to your kids and other beneficiaries, or they go to the government. While most people are clear that they want to minimize the amount of money that goes to the government, they're less sure about how to divide assets between charity and children. For the assets they do want to leave to children, they are often unsure of how to structure that. 

There is no "one size fits all" answer, but there are some questions to consider that will help your client discern what fits with their values and is best for their family.

What do you want your children to do with the money?  

Does your client expect them to use part or all of it for charitable purposes? Does she hope that they will use it to meet some or all of their basic needs so that they can take a lower-paying but more satisfactory job, spend more time at home with their family, or live in an expensive part of the country? Does she expect them to use it to get a start in a business that they can use to generate their own legacy? Or does she want them to have the freedom to do whatever they think is best? If so, what does your client think they are likely to do with the money? There is no right answer. But the answers to these questions will have implications for the amount and timing of distributions in your client's will.

Where have you seen your children making wise or unwise decisions with the money they already have? 

The answer to this question may help you evaluate whether your client's children need to continue maturing to handle the responsibility of additional wealth or milestones that they need to reach in order to receive distributions. Many parents are concerned that their kids will be disincentivized to be productive adults if they have a stream of income that they didn't have to work for. A parent might consider setting distributions to begin at an age when they would expect their children have already become productive members of society.

Engaging in the right conversation at the right time

Just like any business, financial savings and assets need a succession plan. A detailed conversation with your client's kids, understanding their maturity, and working through a thorough financial distribution plan are all great ways to help your client and their family embark on a successful financial relationship together. If your client is wondering when the right time is to start planning on these tactics—there is no better time than now. No matter how old (or young) their kids are, they should start thinking about how to address their financial succession plan and what resources they should leverage to help them do so.  

Camden W. Nunery is family wealth director at Keel Point.

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