Typically, children learn about their inheritance shortly before their parents’ death or during the administration of their estate. But your estate planning should include preparing your children for their inheritance so they can use it wisely.
Parents need to prepare their children to oversee and maintain inherited wealth through ongoing and frequent communication so that future generations are not overwhelmed and unprepared. A study of 2,500 families over decades revealed that 70 percent of family fortunes were depleted by the second generation. This rose to 90 percent by the third generation.
First, carefully plan and prepare your estate. This allows you to lower the costs of asset distribution and increase the inheritance passed on to your heirs.
In this planning, it is also important to establish guardians for your children in case they are still minors when you die. You may also want to establish a plan that passes on assets sequentially over time so that young heirs are not overwhelmed by a large inheritance.
Next, your children should receive a good financial education. They need to know the importance of saving, compounding interest, diversification of assets and other sound financial practices. Provide them money early on so they learn hard lessons by using it wisely or poorly.
Children should be kept informed, at appropriate ages, of your financial net worth and how it could affect them. They can also play a small role in wealth management by selecting a charity for a donation. This provides them with the opportunity to play a small role with managing your assets. Also, they will not consider themselves as mere bystanders or recipients.
Finally, parents should encourage their children to create their own wealth by setting goals over time that gives them some control over their inheritance. For example, a trust that provides children with more access as they become older may encourage them to develop their careers and financial skills that will prepare them for the time that they receive more assets from an inheritance.
An attorney can help you develop an estate plan that meets your needs. They may also prepare documents and keep your plan updated.