Is Transparency About Finances With Your Heirs A Good Idea Or Not?

Many financially comfortable older parents are urged to prepare their heirs to receive their inheritances. How will the adult children know how to manage all those assets? How will they make important decisions about preserving what their aging parents worked so hard for so long to achieve? Some advisors say “tell them what you’ve got and what you do with it”. If you don’t, they warn, most will lose that wealth by second generation after you pass.

Many aging parents hesitate to reveal the extent of their assets. They fear that when an adult child knows how much of an inheritance they can expect to receive, they won’t be motivated to work. Or they’ll take advantage of their aging parents. So the aging parents are secretive. No one discusses the assets.

Does Wealth Transparency From Aging Parents Destroy Kids’ Motivation To Work?

There is no clear answer. What we do know from those who have studied the need to prepare heirs of high net worth elders is that loss of wealth is not from a failure to do appropriate legal planning. Most financially secure people take the time and effort to get a proper estate plan in place, with essential tax avoidant strategies. Loss of wealth, the researchers also find, does not arise from aging parents’ failure to do smart money management themselves. (There are exceptions, of course). If it’s not legal, not tax and not management, what is it?

Breakdown In Trust and Communication

Here at AgingParents.com, where we consult with families with aging loved ones, we see plenty of communication failures. Parents never consider that it is even possible for them to experience cognitive decline. This defies statistics. Our chances of developing Alzheimer’s disease are at least one in three by the time we reach age 85. “That’ can’t happen to me” is the thinking, and no one discusses what might happen if the patriarch becomes impaired at any point. So the patriarch or matriarch never discuss finances with his offspring because, of course, they will be perfectly fine until their last breath. When capacity to think and communicate is seriously impaired, it may be too late to prepare his heirs for what they will likely receive after the parents pass. So the heirs inherit a complex mass of things they have no experience managing or don’t want to manage. Losses of value are inevitable.

Dementia and Alzheimer’s disease

Note that Alzheimer’s disease, from which no one is assuredly immune, can last 20 years. Financial judgment is one of the first capacities lost with Alzheimer’s. Who manages the wealth then? An unprepared potential heir who has no idea what to do? We see too little consideration of this possibility. Cognitive decline is not usually a sudden or overnight thing. The loss of ability comes on gradually and gets worse over time. Do less informed heirs stand by watching this and still know little about how to protect their parents’ wealth as they slide downhill?

Families That Don’t Get Along

Then there is the all too common “dysfunctional family”. People don’t get along in the family system. They are estranged, sometimes for years. This sibling never forgave that one for an insult, or mistreatment that happened in the past. Or the parent is disconnected from an adult child. They don’t speak. After the aging parent is gone, the heirs are forced to figure things out together. Colossal fights escalate in probate court and millions of dollars can be spent on attorneys’ fees. One could call that the worst of a breakdown in communication. Trust has been absent for years. And this outcome is avoidable. Anticipation of the need for transparency is paramount.

Financial Management Skills Can Emerge When Parents Are Transparent About Wealth

Consider that revealing aging parents true wealth is not the essential problem. Heirs knowing what is there, what needs to be managed, and how trusted and skilled professionals can help them is basic to success for the next generation. Teaching opportunities can arise. How can anyone in the family learn any of the necessary skills if you don’t prepare them ahead of time? Aging parents need to make a series of critical decisions if they want future generations to benefit as they intend. They need to focus on the sometimes painful and often uncomfortable issue of broken relationships and loss of trust. It is wise to work at this before it is too late to teach financial management to heirs.

No one can decide for anyone else whether aging parents with high net worth should tell their offspring what they’ve got and how they manage it. But if this is something you and your family are thinking about, look at the result of not talking about it. It often leads to disastrous losses of financial assets after the patriarch and matriarch pass. When professional help is needed to break through long standing barriers and long held resentments, get that help. Preserving what aging parents have worked for is the outcome all of the family deserves.

By Carolyn Rosenblatt, Contributor