Asset Protection Planning
Don’t Fear the Money Conversation
Some of 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. Often, fear is what underlies the lack of communication and trust that inevitably leads to unprepared heirs. Following are some of the fears that prevent people from communicating with their loved ones about their wealth.
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 for spending once they reached a certain age.
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, such as 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.
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 for that elsewhere.
Fear That Outside Influences Will Overtake Heirs. Unfortunately, there are some not-so-nice people in the world. These people tend to enter your life and the lives of your loved ones 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 go on expensive trips or buy nice clothes. 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 Treating Heirs Unequally and Fostering Sibling Rivalry. Depending on your parenting philosophy, you will have to decide whether you want to treat your children or grandchildren equally or fairly in your estate plan. Treating your loved ones equally means that they all receive the same amount; treating them fairly means that your loved ones receive money and property according to their individual needs and situations. The answer to the “equally or fairly” question will depend on your unique circumstances and intentions and may take some soul-searching.
Fear That Disclosure Now 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. 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, 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 retreat to discuss their wealth in case a change has occurred, or even if nothing has changed, to spend time together as a family.
Overcoming Your Fears
Creating a comprehensive financial and estate plan with the help of experienced advisors, in addition to having an honest and open conversation with your loved ones about it, are two of the first steps to overcoming the fears that arise about money and inheritance. To help you prepare to create your plan and discuss it with your family, consider how you would answer the following questions. You can also download our convenient handout, “Your Thoughts on Money,” to guide you through this thought exercise and any conversations you want to have with your loved ones about your financial and estate plan.
- 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.