How to Prevent Entitlement in America’s Children When a Trillion-Dollar Wealth Transfer is Underway

The United States is in the midst of a massive wealth transfer from Baby Boomers to Gen Xers and Millennials – to the tune of $30 trillion, in fact. In light of this, many parents are wondering how to ensure their children feel empowered by their inheritance, without adopting a dangerous sense of entitlement. Below we’ll explore four proactive strategies for avoiding uncomfortable family scenarios that can develop when adult children know there’s guaranteed money in their future.

The subject of money and inheritance can be seen as taboo in many families, whether there’s a great deal of money in the family or not. A 2015 survey by U.S. Trust (now Bank of America) showed that one-third of high net worth and ultra-high net worth adults intentionally did not discuss family finances with their children out of fear that it would create a negative work ethic. Additionally, a full 20 percent said they had been taught as children that it was not appropriate to talk about wealth. How, then, will these families address the very real concerns that arise when wealth transfers to the next generation? The four action steps below offer a place to start.

Have the Conversation

Money talks can be awkward, to say the least, but some people are downright fearful of discussing finances with their children. This leads to financial secrecy that can end up doing more harm than good. According to a survey by Ameriprise Financial, a full 21 percent of children don’t have any idea how much they will inherit. This puts these kids in a difficult situation because they can’t properly manage their expectations about their inheritance. They may end up surprised with an amount vastly larger than anticipated and struggle to know how to handle it. Conversely, and most dangerously, they may expect more than they receive and be left with no plan for their own financial future. For these reasons, having an open and honest conversation is beneficial for everyone involved.

There’s one important caveat to this advice, however. Parents should always make sure their children understand that the future isn’t certain and that things could change drastically over time.

Instill the Value of Money

Studies show that one in three Americans will blow their inheritance within two years. Undoubtedly, that isn’t what their parents had in mind. So, when you talk to your children about money, the conversation needs to go further than simply sharing dollar figures. Have an agenda in mind about how that money could or should be used over time, and what you would like to see come of your hard work. If your children are raised to view their future inheritance as a responsibility to the family, they are less likely to squander it. Over time, these lessons and discussions will also give you insight into what money means to each of your children. Use this knowledge to divide your assets in whatever way makes sense for your family. This does not necessarily mean an equitable distribution among all children, and they should know that you maintain the flexibility to revoke some or all of their future inheritance if they fail to demonstrate that they can be responsible with it.

Teach Financial Fundamentals

Sharing your money values with your children is important, but it’s only half of what they need to know in order to be good stewards of your fortune. Your kids also need a solid understanding of money management fundamentals. For instance, they should understand how to set up a monthly budget, have their own savings accounts to learn about saving up for a big purchase and learn the basics of investing. It’s also a good idea to make sure they know the value of a hard day’s work. They should know what it’s like to get a job and show up every day. The more you help your children develop a strong work ethic, the more responsible they are likely to be with a future inheritance.

Explore Alternatives

Sometimes, parents forget that they aren’t required to give their wealth to their children. There are alternatives that might better suit some scenarios, especially if there are true concerns about children wasting their inheritance or becoming dreadfully entitled. Leaving money to a charity that is meaningful to you is a wonderful way to ensure your hard work will benefit people or causes you fully support. If charitable giving is important to you, share that decision with your children. It can turn into a conversation that involves your kids in the philanthropic process, making giving back a family decision and instilling in them the money values you hope they’ll live by in the future. Discussions about giving back also help you set the expectation with your children that being family doesn’t automatically mean they’re entitled to an inheritance.

Money issues and family issues can be difficult on their own, but mix them together with discussions about inheritance and things can easily go wrong. Protect against your children becoming entitled – and against your money being squandered – using the four proactive steps above. Preparing ahead of time for a transfer of wealth to the next generation is the best way to protect your assets and set your children up for financial independence.

Comments (5)

Leave a Reply

Your email address will not be published.

Peak Financial Freedom Group
2520 Douglas Boulevard, Suite 110
Roseville, CA 95661

DISCLOSURE: All presentation data is provided and intended to be used for general educational purposes only and is not intended as a solicitation for you to buy or sell any financial product. None of the material in this presentation is intended to give you, nor are the presenters engaged in giving you, specific tax, investment, real estate, legal, estate, retirement, or financial advice, but rather to serve as an educational platform to deliver information; nor is it intended to show you how the strategies presented can specifically apply to your own tax, investment, estate, financial, or retirement position, but rather to offer an idea of how these principles generally may apply.

Stocks, bonds, or mutual funds have risks and can lose principal, even with a stop loss, and there is no guarantees of gains, as past performance is not indicative of future positive investment results. The sale or liquidation of any stock, bond, IRA, certificate of deposit, mutual fund, annuity, or other asset to fund a new portfolio and/or annuity may have tax consequences, early withdrawal penalties, or other costs and penalties as a result of the sale or liquidation. You can’t invest directly into a stock market index. A fixed index annuity with an income rider can protect your savings from losses and provide you guaranteed lifetime income, but you could incur surrender charges, gains aren’t guaranteed, you’ll pay a fee, and guarantees are backed by the financial strength claims paying ability of the issuing annuity company.

Illustrations/projections displayed within this presentation are hypothetical in nature and should not serve as the sole determining factor in making financial decisions. Consult with a qualified investment, tax, legal, and/or retirement advisor before making any decisions. By contacting Peak Financial Freedom Group, you may be offered additional information regarding the purchase of financial products. Seminars, radio shows, TV productions, book releases, magazine and book promotions are sponsored, promoted and paid for by Peak Financial Freedom Group, LLC. If you place assets under management with our firm, we are paid an advisory fee, and if you purchase an annuity from our firm, we are paid commissions from an insurance company.

Investment Advisor Representatives of and Advisory Services offered through Fiduciary Solutions, LLC, a Registered Investment Advisor. Peak Financial Freedom Group LLC is primarily a fixed insurance sales organization and provides no Advisory Services. PFFG Insurance Agency LLC, CA License #0N14103, is a licensed insurance agency and provides no Advisory Services. Peak Financial Freedom Group LLC, PFFG Insurance Agency LLC, and Fiduciary Solutions LLC are separate affiliated entities. Insurance products and services provided by PFFG Insurance Agency LLC and independent agents.

Jim Files CA Insurance License #0F06511 Dan Ahmad CA Insurance License #0732913

© 2020 Peak Financial Freedom Group