Older parents need to tell kids if they’re financially fine, or in a bit of trouble. Here’s how to do it with the minimum of shock and tears
At some point, parents close to or in retirement must talk with their adult children about finances: How much money the parents have, and how their financial picture looks for the rest of their lives. Parents with sitcom-perfect families no doubt will breeze through these conversations.
Everybody else, buckle up. Financial experts say it’s a tough talk, right up there with the birds and bees.
Why? “Most people aren’t open about their finances anyway,” says Karen Chan, a financial education expert, financial planner and principal at Karen Chan Financial Education and Consulting in Lisle, Illinois.
Too, a “we need to talk about finances” call from parents can scare the pants off children, conjuring visions of illness or impending death, Chan says. By the same token, realizing that the time to talk is nigh can send an uncomfortable chill through parents. “Parents can have a little epiphany that they’re not going to be around forever,” she says.
Depending on family dynamics, other emotions can arise and sibling rivalry, resentment and jealousy are just a few. “Stuff comes out from when the kids were little,” says Sandy Adams, lead financial planner and partner at Center for Financial Planning in Southfield, Michigan.
A caregiver might resent the freedom of siblings who didn’t take on that role; one child might be jealous of another’s success and thus wary of what a parent will reveal. “I’ve had family meetings where it really is therapy,” Adams says. “I’ve seen people break down in tears, everything you can possibly think of.”
This sounds daunting enough to skip the talk; experts say that’s not an option. They also say that approaching and handling the talk the right way can diffuse some of these difficult emotions. Overall, “make it a priority, do it sooner rather than later, and remember that planning and communication are control,” says Adams. Here are six tactics for making that crucial conversation go well, and with minimum expenditure on Kleenex.
1. Give advance warning. Don’t launch the discussion over Easter brunch or Thanksgiving dinner. Tell your kids when the meeting will be and what its topic is: “Don’t blindside them,” Chan advises. She even suggests a series of conversations, ranging from general to more complex. The first, several years before retirement, informs kids of your retirement plans. The second, a few years into retirement, tells kids generally how you’re doing financially and what you see in your financial future. The third, later into the sunset years, dives deeper into “here’s what we have, here’s how long it will last, we might have to rely on you or Medicaid,” Chan says.
2. Consider neutral territory and a third party. One idea is to have an attorney or financial adviser call the meeting, and have it at that person’s office. That third party — who’s not part of family rivalries or contentions — can set up the meeting and deliver good or bad news. “That’s one way to get around confrontation,” says Dan Fitzgerald, a certified financial planner at Aequus Wealth Management Resources in Chicago.
Make it a priority, do it sooner rather than later, and remember that planning and communication are control.
|— Sandy Adams|
Center for Financial Planning
Even with advance planning, expect a nervous phone call or two. “Sometimes the angst leading up to an event is greater than the event itself,” Fitzgerald says.
3. Include all the children at one meeting. “Get everyone on the same page at the same time,” says William Pitney, a financial planner at FocusYou, a financial planning firm with offices in North Bay and Peninsula, California. “That way, there’s a consistent message.”
Pitney says if parents convey information to children separately, arguments can break out post-death when parents can’t do much to solve them.
4. Before the meeting, decide what you want to accomplish. Do you want your children to know you’re financially set and won’t be a burden to them? Or that your finances are rocky and you might need help one day? With a goal clearly in mind, “you can plan the conversation and make it successful,” Chan says.
5. Decide what information you will divulge. At the bare minimum, children need to know where they can find documents they will need should you become incapacitated, or to settle your estate after you die. That means your will; brokerage and bank accounts; mortgages, deeds and titles; location of and keys to safe-deposit boxes; durable powers of attorney; and insurance papers. Parents can also offer a summary of their financial picture: “We’re fine,” or “we might need your help” should suffice. Parents who have a long-standing open and trusting relationship with their children might divulge more, such as the value of bank accounts and other assets, Chan says.
Most of Pitney’s clients, whose net worth ranges from $2 million to $10 million, say nothing about the dollar amount of their assets, rather than let children believe they have an inheritance to look forward to. If a cheeky child asks for more detail, “they say, ‘we’re going to spend it before we die or leave it to charity,'” Pitney says.
Adams’ clients, particularly baby boomers, generally do open the books to their children. “If they’re willing to have the meeting, they’re willing to go all in,” she says.
These clients show children their balance sheets, sources and amount of income, and outlooks for the future.
6. Decide whether to share what’s in your will. The key here is to avoid post-death shocks. “Surprises in wills often result in bad experiences for people,” Chan says. If your will treats your children equally, there’s probably no need to divulge its contents. If, for whatever reason, you will treat your children differently, then tell them — and tell them why. “Communicating your plans can help clear up emotions,” says Fitzgerald.
If you plan to leave nothing for your children, by all means, let them know. “It’s all about setting expectations,” Pitney says.