The Family Money Talk You Must Have

Your adult kids should know about your finances—and what they can expect.

Talking to your adult kids about your finances and how you plan to divvy up your money after your death may be one of the most important conversations you'll ever have. It gives you the chance to tell the kids how you want your estate to be handled. It lets your kids know whether they need to worry about supporting you in your old age or whether they'll get help paying for their children's college education. And it sets them straight as to whether they will get a windfall, a topic that can be a huge disconnect between parents and children. A recent study by MFS, a money-management firm, found that the majority of Gen X and Gen Y respondents expected an inheritance to help with their own retirement, but less than half of baby-boomers agreed it was important to leave one.

Virtually all parents and adult children believe they should be having such conversations, according to a 2012 Fidelity study. And 86% of respondents in a recent National Endowment for Financial Education survey said they'd trust a family member to make financial decisions for them. But the same research shows that the majority of families aren't comfortable talking about money—at least with one another. What's getting in the way?

Stop avoiding it. For many, the reluctance to talk stems from the worry that a whiff of a windfall could prevent their kids from being independent. In the Fidelity study, the number-one reason parents cited for not discussing their estate plan with their adult children was that they didn't want them to count too much on their future inheritance.

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Others avoid the subject of future financial plans because, well, it's in the future. "People think they have all the time in the world," says estate attorney Merrell Bailey, of Maitland, Fla. "They're in denial that they're ever going to age. Then, because they've avoided having this conversation, it takes on a life of its own. It's such a big, scary topic that it's never to be spoken aloud—it's Voldemort."

Reluctance to talk about money at all also contributes to the problem. Brad Klontz, financial psychologist and coauthor of Mind Over Money (Crown Business), says people would rather talk about their sex lives than their finances. Combine money with death and it's a sure bet that no one wants to talk about it. "No wonder Americans are ill-equipped when it comes to estate planning—those are two topics we love to avoid," he says.

Talk early and often. The earlier you begin talking about money with the kids, the better. "Discussing major financial decisions is good for tilling the soil," says Ruth Nemzoff, author of Don't Bite Your Tongue: How to Foster Rewarding Relationships With Your Adult Children (Palgrave Macmillan). "It lets the family know that this topic is okay to talk about."

Charlotte and Dave Nielson of Oviedo, Fla., have always been open with their kids about money issues, the way their parents were with them. The couple, 69 and 75, have started several businesses over the years and have discussed those with the kids, Jeff, now 41, and Kristi, 45, since they were in college. Ten years ago, they had powers of attorney drawn up for each child and talked about what that meant. By the time they had the "money talk" five years ago, it wasn't a big event. They went over their investments, property, how Jeff and Kristi will share the estate, and where all the documents are kept.

Whether you've been laying the groundwork or not, the estate-planning conversation should happen well before a crisis, says Amy Goyer, home-and-family expert for AARP. "Do it when you're young and healthy enough to get things organized." She recommends using a significant life event—a big birthday or change in job—as a signal to get started.

Once the time has come, consider how you want to have the conversation. Face-to-face is best, either with the family as a whole or one-on-one with each child. Having the family together allows everyone to hear the same thing—though that rarely happens, says Nemzoff. "We all hear through our emotions." If you meet separately, send an e-mail summary to the family as a whole so that everyone has the same information. Regardless of how you choose to share your plan, set a date. That allows the children to prepare psychologically, says Klontz. Often, they're more resistant to having the conversation than their parents are, because they don't want to think about their parents' death.

Ease into the subject. Because their three daughters are in their twenties and no longer in need of a guardian, Juli and Enrique Navarrete, 52 and 49, thought it was time to update their will. The Springfield, Va., couple used that event as a springboard to talk to the kids about their finances. "On the off chance that something could happen to us at the same time, we wanted them to know what we wanted to happen," says Juli.

You could use recent news or a friend's story as a way into the conversation, saying, for example, "I was just reading a story about long-term-care costs and thought you might want to know how we're planning to cover our expenses." Or, "My friend's father just passed away, and the kids are at each other's throats over the estate. I don't want you to end up like that, so let's talk about how things will work."

Stress the practical nature of the conversation. Whether you plan to leave an inheritance or you worry that you'll run out of money before you die and need financial help from the kids, make the point that the whole family is affected and that sharing your intentions is in everyone's best interest. But don't forget that it's your plan.

The kids may be disappointed or upset by your choices if you're giving them news they don't expect—for example, that you'll be leaving your estate to charity or giving more to one sibling. In that case, be straightforward. Say, "I know you won't be happy about this and I'm sorry, but this is what we've decided." It's better for them to hear it from you now, when you can explain your decision, than after your death. Nothing causes more hard feelings than leaving a surprise in your will.

Nervous about laying out your plan for the family? Consider having a third party, such as a financial planner or an estate attorney, present it. Bailey says she often facilitates family meetings and is able to move through the agenda more easily and effectively than a parent might, simply because she doesn't "have a dog in the fight."

Pick your person. Your age and your kids' ages, as well as the family dynamic, should dictate how much information you share and when. But the most important thing to discuss with adult children is who will handle the finances. Perhaps one child is more organized or has experience with financial matters and is thus well suited for an executor role, or another is the closest geographically and has easiest access to your paperwork. Make the reasoning behind your selection clear to your children, advises Klontz. And be aware that, like it or not, by picking one or another to take a lead role, "you can reinforce pain they've been carrying around about where they fit in the family system."

The Navarretes chose one of their 25-year-old twin girls, a third-year law student, to take on the role of executor. "When we said, 'We'll need one of you to manage the will and finances,' it didn't take long for the other two to say, 'Alyssa should do it,' " says Juli. That was the parents' choice as well. They've since had follow-up discussions to make sure the other girls are okay with the choice (they are). "They'll joke about it now," Juli says.

If you don't think any of your children are up to the task of having your power of attorney or executing your will, or you simply don't trust them, you could designate a non-family member—perhaps a friend or your lawyer or financial planner. Or you could set up a living trust with a non-family trustee as backup. Don't let the choice of a third party come as a shock, says Chris Kerckhoff, president of Plancorp, a wealth-management firm. "Kids need to be hearing it from mom and dad that they made that decision and weren't influenced by anyone else." You might say, "We don't want you to have to handle that stress," rather than "We don't trust you."

When it comes to the division of your assets, be just as clear. If you plan to divide the assets unequally, explain why. Among the possible reasons: One child has a lower earning potential because of a health condition or a career choice, or one is helping you more in retirement, perhaps sacrificing financially to be a caregiver. "Having all the kids on the same page and understanding and respecting the parents' wishes while they're alive will mitigate hard feelings of resentment later. You never want a situation where the adult children can't have Thanksgiving together because they're squabbling over the estate," says John Sweeney, executive vice-president of retirement income and insights for Fidelity.

Set up the framework. In your first conversation, skip the numbers, which can distract people from the overall plan. "As soon as you put dollar amounts down, you lose people," says Kerckhoff. Plus, no matter when you start talking about estate planning, the chances are good that the exact numbers will be different at the end.

Rather, provide a framework that outlines your intentions: For example, "We've saved for 15 years of retirement at our current standard of living and we have long-term-care insurance to cover those costs should we need that." If you're planning on gifting money for a grandchild's college education, let your children know how many years you might be able to cover. To disabuse a child of the notion that an inheritance will set them up for life, you might say, "We've put aside money to help give you a cushion, but you'll still have to earn your own living." As you continue money talks over the years, get more specific.

Keep in mind that you may have to change your plans as life presents new circumstances. "People need to have a sense that what they're disclosing is not set in stone. It's just the game plan," says elder-law lawyer Shirley Whitenack of Florham Park, N.J. Each time you adjust the plan, you can share more with your children. The Nielsons have embraced that process with their son and daughter. "They are both very responsible adults," says Charlotte. "We feel comfortable telling them everything we're doing."

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Jessica L. Anderson
Associate Editor, Kiplinger's Personal Finance
Anderson has been with Kiplinger since January 2004, when she joined the staff as a reporter. Since then, she's covered the gamut of personal finance issues—from mortgages and credit to spending wisely—and she heads up Kiplinger's annual automotive rankings. She holds a BA in journalism and mass communication from the University of North Carolina at Chapel Hill. She was the 2012 president of the Washington Automotive Press Association and serves on its board of directors. In 2014, she was selected for the North American Car and Truck Of the Year jury. The awards, presented at the Detroit Auto Show, have come to be regarded as the most prestigious of their kind in the U.S. because they involve no commercial tie-ins. The jury is composed of nationally recognized journalists from across the U.S. and Canada, who are selected on the basis of audience reach, experience, expertise, product knowledge, and reputation in the automotive community.