Eighty-five percent of high net worth individuals feel it’s somewhat to very important to leave an inheritance.1 But that desire comes with worries. Two-thirds of this group are concerned about leaving too large of an inheritance.1 They worry their heirs aren’t prepared to manage a large influx of wealth, that they won’t use the money responsibly or that knowing about a potential inheritance will dampen their children’s ambition for a productive life.
Interestingly, many heirs worry they won’t be able to shoulder the responsibility of managing a large amount of wealth. The steps below may help you and your heirs gain confidence that the wealth transfer can go smoothly.
Lay a foundation with family financial values
Understanding the family’s wealth history and financial values may help heirs feel more connected to the money in a way that an account statement can’t. You could share stories of how the family wealth was created, including mistakes and challenges overcome, as well as inspirations and successes.
You might also explain how previous generations felt about money and what they believed in, as well as how those beliefs have shaped your own relationship with money. Discuss the family’s position on the purpose of money, which might include explaining how previous generations used it, investing philosophies and philanthropic traditions.
The history, values and lessons learned through these discussions may help form a foundation to support your hopes and wishes regarding how your heirs will treat the wealth they’ll receive.
Add structure to your legacy plans
More than two-thirds of high net worth individuals plan to create contingencies for their inheritance.1 This might be done through trusts that set out specific conditions an heir must meet to get a distribution from their inheritance.
For instance, one client required that an heir (or their spouse/partner) needed to be gainfully employed to receive income from a trust. We’ve seen other families that might stipulate that an heir maintain a certain grade point average to have their tuition costs reimbursed from the trust.
Your advisor can help you identify options and opportunities to put structure like this around your legacy plan. An estate attorney can then create the necessary documents to make sure your wishes are followed.
As part of this process, many people find it useful to talk with their beneficiaries about the reasoning behind these conditions and other legacy decisions. Explaining your rationale now may help reduce family discord later.
Help heirs develop wealth management skills
Even if you’ve given your children a solid financial education as they’ve grown, it doesn’t mean they’ll be prepared to manage a sudden influx of wealth when you’re gone. We often work with this “second generation” to help them prepare for their inheritance and build confidence in their ability to manage it.
This might include having your advisor meet with you and your heirs to explain your financial plan and discuss different wealth management strategies, as well as options for wealth transfer. Since an advisor acts as a neutral third party, this meeting can also provide an opportunity for beneficiaries to ask questions and broach subjects you may not be comfortable addressing yourself.
In addition, your advisor may be able to work with your heir to create their own financial plan based on their current situation but also considering how the potential inheritance might factor in. This can set the stage for a smooth transition and responsible future management of your legacy.
We recently had a client include his adult children in a financial and estate discussion, so everyone could understand the process and the plan. We went on to work with the children on their own financial plans, and they continue to participate periodically in family financial discussions with us.
Connecting your heirs and your advisor may also create a comfort zone for you and your beneficiaries. You’ll know that your heirs are building a relationship with someone who understands your money management style. Your children will know that you’ve already done due diligence to select an advisor they can trust.
Whether you inherited your wealth or have built it over time, you want to make sure it isn’t lost or misused in the next generation. Trying the ideas above may help you and your heirs gain the confidence and insights needed to achieve your legacy goals. Your Hancock Whitney team can help you get the conversation started.
1“Kevin O’Leary Is Concerned About Leaving Too Large an Inheritance — So Are Two-Thirds of High-Net-Worth Individuals,” Jack Caporal, The Motley Fool, updated Oct. 12, 2021, accessed June 13, 2022
The information, views, opinions, and positions expressed by the author(s), presenter(s), and/or presented in the article are those of the author or individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Hancock Whitney Bank. Hancock Whitney makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.
This information is general in nature and is provided for educational purposes only. Information provided and statements made should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Hancock Whitney Bank encourages you to consult a professional for advice applicable to your specific situation.
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