For many families, the subject of wealth is rarely discussed. It can be a taboo, an elephant in the room, or perhaps even a secret, known by the parents but not their offspring. This may be especially true of families in which the older generation has accumulated sufficient wealth that the kids will inherit significant sums at some point.
It’s not difficult to imagine why some parents are reluctant to talk about inheritances with their children:
- There may be a fear that if the kids know they’ll inherit a large amount of money, it may negatively affect their own work ethic and sense of responsibility
- Parents may be worried that a sense of entitlement among the inheritors could appear
- Talking about money can simply be uncomfortable for many people
These reasons are all perfectly understandable, and are not without validity. Say you’re an entrepreneur who’s built up a sizable nest egg on the back of hard work, smarts and determination. You may be rightly concerned that if your kids know they’ll eventually get it, they may forego hard work of their own in the meantime.
Yet as Warren Buffet has observed, your children will eventually know everything, so you might as well tell them reasonably early on about how you plan to deal with inheritances. This doesn’t mean letting your kids know as soon as possible, obviously. But talking to them about the family’s wealth and showing them key documents such as your will are things you should consider once you feel they can handle it.
Of course, telling your offspring what they will likely inherit does not by itself make them good inheritors. It simply gives them a heads-up.
So how can you create good inheritors? Here are some tips:
- Be a good role model
How your kids see you act often leaves a more lasting impression than what you say. You can preach to them ad nauseum about good money management, staying humble and giving to important causes. But unless your offspring witness you putting those words into practice, the lessons may just fail to register.
- A dress rehearsal can help when it’s show time
Rather than leaving all the money to your kids once you’ve passed, you may want to consider giving them a small amount now. One idea is to help them maximize their Tax-Free Savings Accounts (TFSAs) each year, and provide some guidance about how the funds can be invested. This guidance can come from you directly, or a trusted investment professional. By learning the language and principles of long-term investing at an early age, your kids will be better prepared when they inherit far greater sums.
- Involve them in the process
Telling your kids about a planned inheritance is an important step in preparing them for the day they actually receive your assets. In doing so, you can help them in their journey to becoming responsible custodians of the family’s wealth. Of course, involving children in the process means more than simply telling them what to expect: you can have them read your will, invite them to participate in philanthropic discussions, and get a sense of your family’s key values.
Ultimately, if you’re going to pass on wealth to the next generation, you have a choice: do you want them to be shocked and unprepared when the inheritance takes place, or would you rather they’re thankful but not surprised, and prepared to carry on your financial legacy?
It’s a choice that’s up to you.