Talking About Family Inheritance With Your Kids

Although “estate planning” might sound like something only gazillionaires need to do, the reality is that we all need to plan for our children’s financial inheritance at some point—the sooner the better.

Your estate plan is simply a set of directions for what happens to everything you own after you pass away. It will help your survivors dispose of your home, your bank accounts and retirement accounts the way that you intended.

Deciding on inheritance early is particularly valuable if you have a spouse or other dependents who will depend on your assets after you’re gone. And it may help your heirs avoid a complicated probate process.

Despite its importance, only 1 in 3 Americans have a written estate plan.¹ An estate attorney can help you draw up critical estate planning documents like a will and/or a trust and designating beneficiaries on accounts. These steps are essential—but not enough. You also must talk to your family about these plans.

Here are some tips to help you have a more successful conversation about family inheritance with your loved ones.

Make Family Inheritance Part of Your Children's Financial Education

Although many people don’t think about communicating their inheritance plans until their offspring are adults, it’s really never too early to make it part of your children’s financial education. In fact, if you never discussed money with your family before, springing the topic on them in adulthood can cause discomfort and may lead you to avoid this important discussion altogether.

If you help your kids learn to handle finances early, you’ll have no concerns about how they will handle their inheritance. Of course, the financial discussion you have with an elementary school student will be far different from the discussion you have with your teenager and your adult child.

One topic to talk about from an early age: your values. When your kids grow up understanding what’s most important to you, it will be easier for them to carry out your wishes after you’re gone.

For example, if you have a charity that’s close to your heart, involve the kids in your giving and volunteering from day one. You can even encourage kids to donate some of their own pennies. Then they won’t be surprised if your will or trust calls for them to write a check to that charity after your death.

Tell Your Kids Where the Assets Are

By the time you’ve built enough wealth to retire, you may have multiple accounts to manage, like a 401(k), an individual retirement account, insurance plans and brokerage accounts.

If you have an executor, make sure they know the location of every account. If you don’t have an executor, consider providing this information to a family member.

Don’t feel pressured to share the account totals. For now, they just need to know what financial institutions hold your accounts, how many of each type of account exists, and where to find the account numbers and passwords.

Set Expectations Early When Family Inheritance Planning

As you sit down to discuss your estate plan, you may choose to let the kids know in advance how you plan to divide your assets. If you plan to leave one family member with a larger share of your wealth, you may want to explain your reasoning. You’re not obliged to do this, but it may reduce resentment if your children understand your thinking. The goal is to lessen the likelihood of surprises down the line.

When it comes to physical items, especially those with sentimental value, consider asking for the kids’ input. Ask each child or loved one to identify the top two or three possessions they would like to have.

Consider When to Give Inheritance Money to Your Kids

You may assume that your heirs will receive your assets shortly after you die, but the reality is, you have more control over timing than that. Timing options to consider:

• Transfer assets to the kids before you pass. This is especially important if you will leave enough assets to be affected by state or federal estate tax. This tactic can be a nice way to help while you’re still around to enjoy it. In 2024, you can give up to $18,000 per recipient per year without incurring gift taxes . (Learn more about the rules for gifting money to family.)

• Peg inheritance to age. If your sons and daughters are currently minors or young adults, you may worry that receiving a large lump sum may cause them problems. You may choose to create a trust that releases one-third of their inheritance immediately, one-third when they reach age 30, and the final one-third when they reach age 40, for instance.

• Link inheritance to achievements or life events. Worried that a substantial inheritance could disincentivize young heirs from working hard at studies or careers? You can specify that your heirs receive distributions only after they graduate from college or get a job.

Outline Your Funeral Wishes

A trust or will may not leave much room for detailed funeral wishes. Families often look to these documents for guidance only to find that they don’t address the funeral at all. This may be an additional source of stress during an already difficult time.

You could help out your family by outlining your funeral wishes during conversations about inheritance. If you have funds set aside for the funeral, make sure your heirs know where to find them. If you pre-purchased a cemetery plot, let them know where it’s located. Also detail any special requests you might have.

Plan for Disagreements Over Inheritance

No matter how much planning you do, questions will arise once you’re gone. You simply can’t plan for every contingency. Instead of letting these questions turn into disagreements, come up with a strategy to handle such situations.

If you have two children who will handle the estate, give them a way to share the responsibility. Maybe they can take turns on who decides what. If you have more children, you may suggest they take a vote.

Be sure to explain who you want in the conversations. Do you want only your kids to make these decisions? Should their significant others be included? If you have a will or trust, the executor or trustee will be the ultimate decision-maker. Whatever you decide, let your heirs know now.

While you can’t control what happens, you may at least provide your children with a clearer path that helps them resolve estate planning disputes. That way your estate is used to build up your family, not fracture it.

If you haven’t gotten started on an estate plan, you may want to talk with an estate planning specialist to discuss what’s best for your specific situation.