Communication is Key When it Comes to Next Generation Wealth Management
In a recent post, we explained that a little education goes a long way. Conversations around money have always been awkward, no matter the level of wealth. For the ultra-wealthy, their reasoning for hiding inheritance figures from their children is often two-fold. They feel that divulging the information would be inappropriate or would alter the behavior of their child(ren) (for the worse), and they often don’t even know how to go about addressing the topic. The tough part is, ignorance is bliss, and leaving children out of the conversation could set them up to “win the lottery” when the inheritance is passed on to them. Bear in mind, we all know how lottery winners tend to spend their money!
Remember, start with the basics, as these are the areas that will help limit risks for your children when it comes to the transfer of wealth.
Budgeting
Although you may not adhere to a strict budget, chances are you have a general sense of your spending, and you know your bounds. Be sure to transfer that same understanding to your children. It’s okay to let them splurge, but don’t make it an everyday occurrence.
There’s something to be said for earning and appreciating items that fall outside your traditional spending needs. It’s also critical to understand that there are limits. Subsidizing unrealistic spending is the same as having no budget at all.
Credit
While you may not utilize much debt service beyond a traditional credit card, it’s entirely possible that your children may need to take out mortgages, car loans, and the like.
That said, learning about these instruments early on is key to understanding how homes and cars play into budgets over the long term. Debt is a tool, and if used correctly, can assist you throughout your life. While it does allow for leverage and flexibility, it should never be an avenue to stretch far beyond your means. The humiliation of losing everything is far greater than the disappointment of not having more.
Basic Estate Planning
Estate planning can be complicated, especially for the ultra-wealthy. Setting up trusts, designating trustees, overseeing investments–it’s a challenge to stay on top of it all, and unfortunately, that can mean that some of the simple things fall through the cracks.
You’ve set up some great trusts for your children, but if they’re over 18, do they have a will, a durable power of attorney (DPOA), or a healthcare power of attorney? Do they even know the significance of these documents, or the consequences of not having them?