Millennials: Creating Your Estate Plan Is a Family Affair

May 6, 2021, 8:00 AM

After a year of uncertainty and a presidential transition, you may be looking to solidify your estate plan and begin preparing your own family for wealth like many high-net-worth millennials. In order to ensure you are doing this with a comprehensive view, you need to understand whether you should anticipate any inheritance from your parents or family trusts. However, it’s often difficult to talk to your family about wealth.

Understanding your parents’ estate plan and starting the conversation

Beginning the conversation with parents can be uncomfortable because you may not know how to start. Wilmington Trust research shows that 67% of current wealth holders (the parents of millennials) were not given complete details of their inheritance prior to receiving it. This means your parents may simply be carrying on the tradition of silence about their wealth, but in fact may be open to the conversation. To break that trend, consider broaching the subject with your parents by focusing on your own estate plan, rather than asking directly about their plan or financials. You can mention that given current exemption levels and a new administration, it would be helpful for your tax planning to understand their estate plan and if it will have any effect on yours.

Our research found that 20% of wealth holders said they hadn’t provided full details of their wealth transfer plans to younger generations yet because they simply hadn’t decided what they were going to transfer and how. Take this as an opportunity to help them complete their plans. Remember that these conversations are typically not a one and done situation. You don’t need to uncover and solve everything in one discussion. Consider planning a series of conversations that only address small pieces of the plan at a time. This will allow time to process new information and lead to more thoughtful discussions.

Since there is an undeniable bond between grandparents and their grandchildren, another approach to discussing wealth with your parents is by explaining how a tax efficient estate plan can benefit their grandchildren. You can explain why it is helpful to know how much wealth will be left to your children. Be prepared to discuss how you would ideally like wealth to be passed on to your children.

Planning for your children

When clients express concern for demotivating heirs, an underlying sentiment is that they are afraid their heirs will not exhibit their same values. Shared experiences, such as philanthropy, are a great way to start establishing and reinforcing family values as you prepare your children for their inheritance. In addition to focusing on values, you may also want to have deliberate conversations about money and wealth since these topics are typically not taught in schools. Studies have shown the importance of learning money management early. Let the age and maturity of your children guide you on the topics.

Eileen Gallo, co-author of “The Financially Intelligent Parent,” provides parents with some helpful guidelines. She says with children as young as two years old, you can start by teaching about needs versus wants. When children reach the age of four, you can begin to have basic conversations about why items cost what they do. By six years old, you may introduce an allowance to teach money management and involve them in charitable activities. When children reach 12, start to think about utilizing checking accounts and debit cards to introduce financial responsibility.

Working together with siblings

You can also encourage your parents to be open about their estate plan to understand how wealth will be distributed among siblings to get ahead of issues before a death and try to mitigate potential disharmony. A best practice in family governance is to gather everyone together for a structured family meeting to avoid miscommunication. A third-party facilitator, such as an advisor, may help alleviate initial awkwardness, potential tension, or a sense of hierarchy in these meetings. Use this as an opportunity to introduce your trusted advisors to the family.

Throughout the meeting, try to address the “why” as much as the “what” of the estate plan. This becomes even more critical if beneficiaries are treated differently or there is something unique, such as a family business where only certain members work for the business, as the idea of “fair and equal” may become harder to quantify. For family business owners, distinguish between ownership and employment, utilize voting and non-voting shares to distribute wealth, and consider creating a shareholder agreement. Building these as a group will not only strengthen familial bonds, but they will provide structures and venues that give all family members a voice.

Another topic to address to the collective family is the “who” and “why” if certain family members are named as executor or trustee in the estate plan. While these jobs involve a lot of responsibility and work, they may be viewed as a privilege since they come with a certain amount of knowledge and perceived power. For these situations you may consider adding a corporate executor or trustee to your estate plan to serve as an independent party.

Timing is everything

After a year of much turmoil, establishing a sense of control over your own financial and estate planning efforts can go a long way in providing peace of mind that no matter what comes, your family wealth will be structured to offer the best opportunities for protection and security in the years ahead.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

As part of the Wilmington Trust and M&T Emerald Advisory Services® team, National Director of Family Legacy Planning Marguerite Weese is responsible for the development and delivery of strategic advice offerings. She provides personal wealth planning to high net worth individuals and their families through the design and implementation of their estate, business succession, and family legacy plans.

Wilmington Trust is a registered service mark used in connection with various fiduciary and non-fiduciary services offered by certain subsidiaries of M&T Bank Corporation. M&T Emerald Advisory Services and Wilmington Trust Emerald Advisory Services are registered trademarks and refer to this service provided by Wilmington Trust, N.A., a member of the M&T family.

This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Note that tax, estate planning, investing, and financial strategies require consideration for suitability of the individual, business, or investor, and there is no assurance that any strategy will be successful.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact us at TaxInsights@bloombergindustry.com.

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