As financially comfortable older parents, it’s crucial to ensure that your adult children are equipped to manage your assets and make important decisions about their future. Experts advise open communication about what you have and what you do with it. If you fail to do so, you risk losing that wealth by the second generation.
The Fear of Wealth Transparency: Does it Affect Motivation to Work?
Many aging parents are hesitant to reveal the extent of their assets, fearing that their children will become unmotivated or take advantage of them. However, studies show that wealth loss is not due to a lack of legal planning or smart money management. So what is the cause?
Breakdown in Trust and Communication
Parents ignore the possibility of cognitive decline, leading to an inability to discuss finances and properly prepare their heirs. By the time the parents become impaired, it may be too late for the heirs to learn how to manage the complex assets they’ve inherited, resulting in inevitable losses.
The Long-lasting Effects of Dementia and Alzheimer’s
Alzheimer’s disease can last for up to 20 years, causing a gradual loss of financial judgment. This means that unprepared heirs are left to manage the wealth without any guidance. This possibility is rarely considered, leading to potential financial ruin for the next generation.
Dealing with Dysfunctional Families
Dysfunctional families are all too common, with siblings and parents estranged for various reasons. When the aging parent passes away, the heirs are left to navigate complicated financial matters together, often leading to costly fights in probate court. This breakdown in communication and trust can be avoided with anticipation and transparency.
Teaching Financial Management Skills Through Wealth Transparency
Revealing the true extent of your wealth is not the problem. Instead, it’s vital for heirs to understand what needs to be managed and how professionals can help. By preparing your heirs ahead of time, you provide them with valuable opportunities to learn necessary skills and make critical decisions. Addressing broken relationships and loss of trust is essential for preserving your wealth and ensuring the success of future generations.
The Consequences of Avoiding the Conversation
While it’s ultimately up to each family to decide whether to disclose their wealth, it’s crucial to consider the consequences of not talking about it. Failure to communicate often leads to disastrous financial losses after the passing of the parents. If professional help is needed to overcome barriers and resentments, seek that assistance. Preserving what you have worked hard for is a goal that every family deserves to achieve.
Don’t forget, if you want custom retirement planning advice, feel free to sign up for The IFW Retirement Roadmap Webinar today!
Erik C. Sussman, CLU®, ChFC®, CFP®, and CEO of The Institute of Financial Wellness founded the company to provide financial education, resources, and services that help people live their best lives.
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