Generation to Generation

Kevin T. Smith, CFP®, CTFA, CDFA

Discussing the generational transfer of your wealth with your adult children may feel as uncomfortable as talking politics at a dinner party. There is no question that the Greatest Generation — and those that came before — kept their financial information much closer to the vest, while Boomers have been more apt to discuss these affairs with their children. It is obviously a personal decision if you want this discussion to take place.

Here are some considerations when deciding whether or not, or how to broach this sensitive topic with your children:

  • Will the relationship change dramatically if beneficiaries are made aware of their future inheritance or lack thereof? Of course, this can be difficult to predict.
  • Will it be advantageous to begin gifting assets during your lifetime?
  • Are you anticipating that your children will be involved in your finances as, for example, a trustee or POA (Power of Attorney) while you are alive?
  • Is there family pressure to disclose your financial affairs? If so, this can be a sign to proceed with caution.
  • Is your next generation financially sound enough not to need or want the inheritance? If the answer is yes, you may be able to do multi-generation planning such as college funding, generation-skipping trusts, or “stretching” IRAs.

Provide a Roadmap
If the decision is made not to include the next generation in your planning, it is still wise to provide your spouse and/or children with the names and contact information of your professional advisors in case of an emergency. These commonly include:

  • Attorney (legal and estate planning documents)
  • Accountant (copies of previous years’ tax returns which can identify where accounts are held)
  • Financial Advisors (statements on investment accounts, IRAs)

I recommend that you review the list annually with those who would be involved so that when the time comes, your family knows who to alert. Some honest, and admittedly morbid, questions to ask yourself are: How will my affairs be handled if I don’t wake up tomorrow? Will my spouse/children know who to contact? Will they have access to cash immediately from non-probate assets to cover short-term expenses?

It’s Your Decision and Yours Alone
As a client advisor, I advocate for the discussion among family on the transfer of assets whenever possible and encourage clients to include the second and, when appropriate, even third generations in our meetings. This approach can help provide for a smoother, more tax-efficient transfer of wealth to your loved ones. It can also create opportunities to educate about the successful moves or missteps that you made with your finances. Remember — you are the one who worked and saved for your assets and no one will appreciate the hard work and effort as much as you!

Please see Fenimore disclosure.