The Biggest Taboo – Inheritance

Talking about money is a big taboo. We might brag about a stock pick or a successful real estate deal we were invited to join. But rarely do we tell our friends how much money we earn or our actual net worth. That would be impolite. And no where is money a bigger taboo than within our own family. Parents don’t want to tell, and adult children are afraid to ask.

But what if all this secrecy is a big mistake? 

Anyone who has saved enough to live comfortably in retirement for the next 30 years has a good chance of leaving money to their heirs. Responsible financial planning must include a cushion to cover the risk of longevity, high inflation, or lackluster investment returns. Otherwise, the chances of running out of money are too high. While most people avoid thinking about what happens after they die, going through the exercise may alleviate problems and confusion for your loved ones. And maybe, just maybe, it makes sense to have a conversation with your heirs to let them know what to expect.

Leave no surprises

In May, I moderated a session at the CFA Annual Conference with Philip Marcovici, who advises some of the wealthiest families in the world. His advice – make sure you don’t leave any surprises for your children. Perhaps he has seen too many family feuds and knows the consequences. The children of Marcovici’s clients know their family has significant wealth to pass down, but his advice is still relevant to families with moderate levels of wealth.

Why no surprises? It is impossible for children and heirs to understand your intentions unless they hear it from you directly. After you are gone, they won’t have that luxury. Uneven estate distributions are confusing to heirs, and in some cases may be unintentional. Retirement plan, IRAs, annuities, and life insurance do not transfer based on instructions in the will, but rather by beneficiary designation. This can lead to unintentionally lopsided estate distributions.

Consider two half sisters whose father just passed away. One is listed as the sole beneficiary of a life insurance policy, while the other receives a larger portion as his residual estate by instructions in his will. The problem is that Dad used most of his financial assets to pay for medical expenses. While dealing with his illness, he never thought about the consequences of his estate plan. One daughter receives a large insurance claim, while the other receives very little. Since Dad never had a conversation with either daughter, both struggle with lingering questions as to why he favored one over the other. The sisters no longer speak to each other.

Surprises can have devastating consequences for surviving family members. Stating your intentions helps clear the air and can potentially catch unintentional mistakes in your estate plan.

What about spoiling them? 

All parents want their children to flourish and succeed in life. Wealthy parents often worry that money could stifle a child’s motivation. No one wants to ‘ruin’ their children with inherited wealth. Yet many parents supplement living expenses for adult children. It is hard to watch them struggle. There is a fine line to walk between support and spoiling, and honest communication can tip the scales in your favor.

Your adult children may also wonder if you have enough to cover the cost of healthcare as you age. Because of your silence, they may be saving to assist you. What other financial goals are they forgoing to prepare to take care of you?

A family of five siblings were utterly shocked when each received $1 million after mom passed away. Their parents lived modestly and never mentioned the size of their investment portfolio. Dad liked to follow the stock market and bought durable companies he never planned to sell. Imagine what else Dad was keeping secret from them. They will never know.

Have a Conversation

Having conversations about money is uncomfortable. Having conversations about money with your family members is even worse. Each family should handle this conversation differently, depending on their unique circumstances. Even spouses avoid talking to each other about money – one handles the bills, the other the investments. But perhaps we owe it to our loved ones to alleviate their fears about our ability to pay for long-term care. And maybe it would be better to let them know the generalities of our estate plan. Don’t let money cause a family feud after you are gone. There are much more important things to fight about – like politics.


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