As part of my client’s financial planning process, we discuss retirement and even the taboo topic of inheritance. There are three camps that most families with young children fall into: 1) They think they’ll get something, 2) Their parents are set with pensions and savings but there will not be anything left over for inheritance, or 3) They are worried about their parents and having to support them financially.
Once you decide which camp you are in, what can you do to plan for the future? Here are a few simple steps you can take to get a better handle on the topic of inheritance.
Step 1: Talk with your parents and siblings to establish reasonable expectations. This will verify whether you put yourself in the right camp! Most people don’t want to talk about it because they feel guilty or worry that they will come across as greedy. Leaving these touchy items under the surface can make it very hard in the end to sort out differences or deal with tough situations like your parents running out of money.
Step 2: Educate yourself. Recent studies say that the baby boomers have not raised financial responsible kids (Gen Y, born in late 70’s +) who can handle inheriting large amounts of money. These kids have been given most of what they want since childhood and have adopted their parents’ model of generous spending. As a result, parents are refusing to leave their kids money.
To avoid this, understand your own finances, retirement planning and how to invest. I recommend taking control of your financial future and putting in the work now (versus ten years from now when you are in a panic about where time has gone). CNN Money has put together a step-by-step guide on how to gain control of your financial life:
http://money.cnn.com/magazines/moneymag/money101/. There are 23 lessons. Go through a few each week and you will be better informed by the end of the summer!
Step 3: Prepare now. For those receiving an inheritance, understand the responsibility associated with getting this wealth. This might entail understanding the structure of your parents’ estate and underlying investments. Ask estate planning attorneys and financial advisors to give you a brief overview on anything you do not fully understand, so that you “get it.” In the event you are worried about your parent’s financial health and you are in a good financial position, there are steps that you can take to help your parents. For example, you could pay their health insurance premiums, buy long-term care insurance (especially for mom due to the longevity of women), or hire a financial planner to help them understand their own finances.
One thing is for certain, everyone will die (morbid, but true); however, planning for the future helps to alleviate financial anxiety. If you just cannot face this topic with your parents, at least plan for your own family and do your part to educate yourself and your children on managing money.
Katy Song, CFP, focuses on comprehensive financial planning for families with young children and couples starting their lives together. You can contact Katy at firstname.lastname@example.org , visit her website katysong.com, or follow her on twitter @katydavissong.