I remember when I first started in this business, people had a very ad hoc approach to estate planning. They didn’t want to talk about it. And as a result, there was a general lack of knowledge about what estate planning entails.
I think things have gotten better. While I still see people with holes in their estate plan, things are a lot better than before. But I still see estate plans that are too inward-looking in nature.
Most professionally written estate plans do a good job dealing with the wishes of the person giving assets away. But they sometimes fail to deal with the needs of the heirs and other stakeholders.
I think this is a missed opportunity. Contrary to popular belief, inheriting money isn’t easy. Many times, inheritance comes with guilt, unrealistic expectations and other emotional baggage. Sometimes heirs have no idea how to manage their newfound wealth. If the inheritance is large enough, it could lead to drastic life changes that are forced on heirs without consultation or consent.
With that in mind, here are some tips that can prepare our heirs for their inheritance – a combination of practical financial advice and relationship-building “soft skills.”
Communication
It’s become a bit of a cliché to suggest communication as a solution to financial problems. But when it comes to estate planning, it’s really true. A lot of conflict, bad feelings and legal hassles can be avoided if heirs know ahead of time what your estate intentions are.
Write it down
Obviously, your will is the foundation of your estate plan. But its purpose is to explain what you want to do with your assets – not necessarily why. I recommend people write a personal statement of wishes to accompany their will, a document that clearly and cogently explains why you’ve structured your estate the way you have. Heirs might not agree with your decisions, but at least they won’t have to wonder why you made them.
Teach them a positive attitude
Preparing heirs starts with how you teach them about wealth. Be cautious with handouts and “economic subsidies.” Foster a culture of achievement and independence. Encourage and celebrate successes. By the time they inherit, your heirs will have a mature, healthy, attitude toward money that will serve them well.
Deal with succession early
Don’t assume your heirs will want to take on the business – ask them directly. Establish a clear plan of what happens when, and what happens to family members who may be owners without being managers. The earlier you plan, the less chance of hassles and conflicts.
Think about “delayed” inheritance
Sometimes the best thing you can do to prepare heirs is to delay their inheritance. Trusts are the go-to tool for such strategies; they can be a great way to allow heirs to grow up or accomplish important life goals before they inherit.
Educate, train, mentor
For many heirs, inheritance is like stepping into a whole new world. Introduce heirs to your team of professional advisers. Identify mentors if you can (particularly important with business assets). Give heirs the opportunity to sit in on financial discussions. Giving them a financial context for their inheritance will make the transition to wealth easier
One final note: it might sound trite, but no estate plan in the world can make up for neglect, distrust and lost time. So if you’re concerned about how your heirs will handle their inheritance, invest in your family. Spend the time with kids (and grandkids). Take an interest in what they’re doing. Talk to them. Really, it’s the best estate plan you could ever have. •
