Many families create estate plans to ensure future generations have some type of monetary security. The gifts or inheritances can be small or they can be quite large. In a recent New York Times article, Jessie Spector and Naomi Sobel were fortunate enough to receive massive inheritances just for being in their respective families. Although they come from different backgrounds, they share one common thing – they had no idea of their family’s wealth prior to their bequests.
Spector and Sobel may not have to work a day in their lives, however, they were both extremely unprepared to handle this windfall and experienced a separation from their peers. Their parents did not feel comfortable talking about money with them, especially such large amounts that would impact the rest of their lives. This is completely normal though – many parents feel uncomfortable talking about their wealth because it is considered impolite. Unless you come from a history of wealth and you know your financial situation from an early age, there is a bit of shell shock when you have a meeting with your trust lawyer.
The decisions surrounding the inheritance and its tax benefits are generally made by the parents or guardians with little input from the children. Roy Williams, president of a company that consults families on transferring wealth, said to successfully transfer a large amount of funds to child, parents must openly talk about money with them.
“When you’re looking at it from a broader, more holistic perspective, you can say what are we trying to accomplish,” he said. “If you don’t define it as money and things but as our values, that’s a huge, huge opportunity.”
A deterrent for parents is the fact that once they explain their family is wealthy, their kids may not be as motivated to accomplish something. However, silence could result in the kids finding out for themselves which could turn to resentment and anger. Parents should approach the situation by asking themselves what they want to accomplish with the money. Waiting could maximize the tax bill but could avoid family discord.
If parents exemplified their actions by giving money to charities or philanthropic organizations, the kids will see that there are beneficial ways to spend money. Parents can create a mentality that the kids must give back and become responsible citizens even in a higher economic position. This could ultimately pay off for generations to come.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.