Studies[1] have shown that the largest contributing factors to generational loss of wealth are a lack of communication and trust among family members and the failure to prepare heirs.[2] Often, fear is what underlies the lack of communication and trust that inevitably leads to unprepared heirs. The following are some of the fears that prevent people from talking with their loved ones about their estate plan and their money.
Common Estate Planning Fears
Fear of Creating an Entitlement Mentality
We have all heard horror stories about trust-fund kids who had no motivation to do anything other than relax and enjoy life because they knew that a large inheritance would be available once they reached a certain age. Knowing that the large inheritance was coming, they did the bare minimum to make sure they would receive it, but in the process, ignored opportunities because (in the child’s mind) the future was already mapped out.
Luckily, by working with an experienced estate planning attorney, you can craft an estate plan that avoids this outcome. Your estate plan could include incentives for your beneficiary. These incentives could include qualifying to receive money from the trust only if they graduate from an accredited college or university with a certain minimum grade point average. You could also include restrictions on what the money can be used for, such as tuition, starting a new business, or the purchase of a first home, eliminating the idea that the money is available for luxury or frivolous items.
On the other hand, if you are truly concerned about how your beneficiary will use the money, you can leave the decision of when and how much money they receive to the discretion of a trustee who understands your concerns about discouraging entitlement mentality and encouraging beneficiaries to develop a strong work ethic and become productive, contributing members of society.
Fear That Heirs Will Squander Their Inheritance
You have worked hard to create and maintain your wealth. You have spent where you needed to and saved in other areas. It is reasonable to fear that when you pass along your wealth, your level of frugality may not go with it. As mentioned, to combat this fear, you can include provisions in your estate plan that list exactly what the money you are leaving your loved one can be used for. If your intent is to provide your loved one with an education and seed money for their first business, you can restrict the use of the money to those purposes. Or you can select successor trustees who will make trust distributions in accordance with your long-term objectives for your money and your loved ones. This means that if your loved one wants a wild weekend in Vegas, they will have to find the money elsewhere.
Fear of Outside Influences on Your Heirs
Unfortunately, there are some not-so-nice people in the world. These people tend to enter the scene when there is money at stake. While your loved one may be incredibly level-headed and frugal, it can sometimes be hard to say no to a partner who wants to live lavishly. In addition, with about half of all marriages ending in divorce, potential gold diggers may find your loved one even more attractive if there is the possibility of a large divorce settlement. Through proper drafting, an experienced estate planning attorney can not only restrict how your loved one accesses the money you leave them but also protect it from creditors and predators.
Fear of Fostering Sibling Rivalry by Treating Heirs Differently
Depending on your parenting philosophy, you will have to decide whether you want to provide for your children or grandchildren in your estate plan. Meaning, do you want to split everything equally between your heirs, or do you want to provide more for some than for others based on need or situation. The answer to this question will depend on your unique circumstances and intentions and may take some soul-searching.
Some people believe it is crucial that everyone in the same generation (children or grandchildren) be treated the same (i.e, equally) to prevent family conflict. Others believe that because everyone is different, each person in a generation should be provided for in a way that gives them all the same access to opportunities and advantages in life (i.e., fairly). One child may make more money than a sibling, or one grandchild may have special needs while the other grandchildren do not. These differences might require different amounts and types of inheritances.
Fear That Disclosure Might Limit Choices and Changes in the Future
Whom you tell about your plan does not impact your ability to change your mind; however, the type of plan you create may limit your ability to make future changes. A revocable living trust or a last will and testament can be changed at any time up until you are incapacitated (unable to make decisions for yourself) or you die. On the other hand, there are irrevocable trusts that, while offering increased asset protection and potential tax benefits, may be more complicated or problematic to alter if you change your mind in the future.
Although having an initial conversation with your family about your financial wishes can be nerve-wracking enough, and meeting with them a second time to let them know you have changed your mind could be even more so. Yet, the difficulty does not diminish the importance or the benefits of being open and honest with your family. This is why we generally recommend that families hold an annual meeting to discuss their wealth in case a change has occurred. And even if nothing has changed, to spend time together as a family.
Fear about Running Out of Money
For many people, earning or acquiring money offers a sense of security. Without money, some people may feel vulnerable. Also, unless you plan to work until the day you die, you may also worry that the money you have acquired during your lifetime will run out before your death, leaving you to rely on government assistance or family members. While this scenario is always a possibility, working with an experienced financial advisor can help you get ahead of this fear by taking a look at your current income, savings, and expenses to create a budget and investment strategy that meets as many of your future needs and wants as possible.
Overcoming Your Estate Planning Fears
The first two steps to overcoming fears around money and estate planning are to first, create a comprehensive financial and estate plan with the help of experienced advisors, and second to having an honest and open conversation with your loved ones about it. To help you prepare to create your plan and discuss it with your family, consider how you would answer the following questions.
- What does money mean to me?
- Am I comfortable telling my family about my plans for my wealth?
- What do I want to teach future generations about money?
- How can I help future generations develop financial competency?
- Am I concerned that I am going to run out of money?
- Do I worry about creating an entitlement mentality among my children, grandchildren, etc.?
- If I leave a large sum of money, do I think future generations will squander it?
- Do I think outside influences will take advantage of my children and grandchildren if I leave them a large sum of money?
- Do I want to treat my children and grandchildren equally or fairly?
The answers to these questions will help you express your fears, attitudes, and goals about your wealth and how you want to ultimately pass it down (or not) to your children, grandchildren, and beyond. Also, discussing your philosophy about money with your loved ones will allow them to know what to expect after you are gone instead of being left in the dark. Call us to schedule an appointment so we can discuss your options for protecting your wealth for generations to come.
Give Us a Call
Whether you have an estate plan and you’re uncertain how to discuss it with your family, or if you’ve been putting off making an estate plan because you’re unsure how talk to your family about it, we can help. Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information and to learn about our firm, please contact us.
[1] Our History, The Williams Group, https://www.thewilliamsgroup.org/our-history
[2] An heir is someone entitled to receive a decedent’s property under a state’s default laws when the decedent dies without a will. In Texas, heirs are determined by marriage and blood relationship, this means heirs are usually spouses, children, grandchildren, etc. But can also include parents, siblings, and nieces and nephews as heirs.
