(Bloomberg Opinion) -- The largest transfer of money in US history is underway — with more than an estimated $70 trillion set to pass from wealthy baby boomers to their children over the next 20 years — and no one wants to talk about it.
Surveys are piling up in my inbox about how neither parents nor their adult children want to discuss the former's finances. Some boomers are frozen by fear and reluctant to cede control. Wealthier parents think their kids are unprepared to handle the money, or they're worried if they disclose too many details, it could encourage their kids to become flaky or irresponsible.
Parents with less are concerned about the recent market turmoil and a potential recession. They’re unsure what they’ll leave to their children, if anything. Plus, many of them have already been providing financial support to their adult children, while shouldering the costs of their own aging parents.
And however much or little money they have, Americans tend to feel awkward discussing it, being cagey about financial details like how much they earn — a number we tend to endow with almost moral significance. Some of this stems from how we envy wealth, yet ascribe negative attributes to those who have it, says Kristin Keffeler, author of The Myth of the Silver Spoon: Navigating Family Wealth & Creating an Impactful Life.
The silence could come at a cost.
It’s hard for adult children to make a financial plan without knowing how exactly their situation could change. For example, if they’re expecting an inheritance that won’t come, maybe they need to save more for retirement. Or maybe they shouldn’t be contributing to a 529 plan if it turns out their parents intend to pay for their grandchildren’s education. One financial adviser told me about a client whose son was building her a “grandmother’s apartment” because he didn’t realize she had $8 million socked away.
Beyond such practical matters, without any sort of context communicated beforehand, inheritances can quickly turn into proxies for love or trust, and ultimately, battles among siblings or other heirs.
Rectifying this is simple, yet a majority of boomers haven’t even taken the first step: sharing basic details like which firms they use for bank, brokerage or retirement accounts. If they use a financial adviser, they should introduce that person to their kids. That can go a long way to making an adult child feel part of the conversation.
Keep discussions about money and numbers separate from conversations about what parents want their kids to do with any wealth they’ll pass down, says Paul Edelman, a financial coach who works with wealthy families.
“Like in business, don’t mix performance and salary reviews,” Edelman says. Studies have shown when those are discussed at the same time, all employees can do is focus on the size of the raise (especially if it’s smaller than anticipated). It crowds out any constructive thinking about performance. The same is likely to be true if inheritance figures are discussed alongside parents’ hopes and fears.
Don’t assume you have to give a specific amount for what your children stand to inherit. It’s often sufficient to provide a range, or even specific things an inheritance could go toward (like a down payment for a home) to give a sense of magnitude. Plus, it’s important to maintain flexibility — market performance could alter the exact amount, or you may decide you want to give more to charity.
If philanthropy is one of your goals, it can be an ideal way to start the dialogue about wealth transfer. It’s more neutral ground than talking about which family member is getting what and why. And it’s something that younger generations tend to be especially keen on doing.
Finally, if you plan on doing something with an inheritance that could be interpreted as surprising, or if you’re tried to have a conversation already and it hasn’t gone smoothly, it may be worth bringing in a third party who can be a more objective presence, says Moira Somers, a neuropsychologist who wrote Advice that Sticks: How to Give Financial Advice that People Will Follow.
It’s natural to want to keep things “in the family” without an outsider privy to it all. But if it means you’ll have a more productive discussion, it’ll be well worth it for all parties involved.
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To contact the author of this story:
Alexis Leondis at [email protected]