Issues such as passing down your values and understanding your parents’ end-of-life wishes are often the more difficult parts of a plan to tackle – but also the most rewarding.
The well-being of family members is likely a top priority. You care deeply about their future and likely spend much time and thought preparing for it. And if you can, you will probably plan financially for major milestones, such as children’s education, weddings, first homes and possibly your grandchildren’s education.
But what are you missing? What other steps can you take to ensure you comprehensively plan for those you care about most?
Based on Northern Trust’s experience, there are several aspects of wealth planning that tend to worry clients the most – in part, because they are more difficult to tackle. Below we cover three of the most common and provide suggestions on how to successfully address them.
In addition to planning financially for major milestones, you may also make gifts transferring wealth to your children during their lifetime. Having addressed their financial security, the question of how to share the values you hold becomes more pressing. This objective can be much more challenging to address than saving for a financial goal. The following can help:
Talk to your family about wealth
Many families spend little or no time talking about wealth. This contrasts sharply with the amount of time they spend managing its technical and tax issues. Further, your wealth – or compensation, in the case of certain executives – may be public knowledge, including among your children’s friends. This makes talking candidly to your children about wealth – and how it fits into a rewarding and meaningful life – all the more important.
For a guide on how and when to have productive conversations that communicate your values, read Wealth and Wisdom Across Generations.
Make financial decisions together
Include your children in decisions about finances to demonstrate the concept of financial trade-offs as well as the role that values can play in planning. For example, if annual gifts have accumulated in a brokerage account for a child, have the child engage with you or your advisor in the review and investment of the account. Do this based on the child’s goals. Are they unsure of their goals, or are you not sure that you agree with them? This exercise provides you the opportunity to have more meaningful conversations around wealth’s purpose.
Engage in philanthropy together
If philanthropy is important to you, think about ways to include your children. What needs or causes do they care about? How will you support some of those causes? Or do your children have the ability to give themselves? Research shows that giving is highly influenced by parents and grandparents1, and in our experience, some of the most rewarding and successful philanthropic endeavors are those shared by families across generations.
Consider including a Statement of Wealth Transfer Intent (SOWTI) in your estate planning documents
As a personalized declaration of your wealth transfer goals, a SOWTI is the heart of your trust or will. It provides a unique intention that is tied to your personal history, values or perspectives. It is a more formal method – with potential legal benefits – of transmitting your values with your wealth.
In addition to talking candidly to your family about wealth, focused financial education can help family members develop the skills and understanding needed to manage money responsibly. Financial education can take on many forms and can be introduced as early as five years of age. To help with this ongoing process, talk to your advisors about where to find age-appropriate resources, and learn more about Northern Trust’s Essentials financial literacy curriculum designed for young adults.
Many of us have parents or other family members who we will want to support as they age. The financial costs and emotional decisions associated with this support, including long-term medical and personal care, are significant and should be addressed well in advance of when they are needed. To plan accordingly:
- Use your team of advisors to find advisors for parents and other family members, or have your parents engage your advisors separately.
- Determine what insurance options are available, and work with your advisors to model Social Security and Medicare income and expenses.
- Understand that direct payment of medical insurance and medical expenses is excluded from the gift tax and is not considered income to the recipient.
- Keep a record of payments. Determine whether you prefer to assume financial obligations alone or with other family members. Likewise, consider whether you desire to be reimbursed from the eventual estate or have the estate distributed among family without any reimbursement. These may be uncomfortable issues to address, but they are important and easier to navigate before the process of formal estate settlement.
- Address important end-of-life decisions before a health crisis arises. Again, these may be difficult discussions, but they are less grim when not done in the midst of a health incident.
While addressing the above parts of your financial plan can seem daunting, doing so usually brings significant relief and peace-of-mind. And you don’t have to go it alone. The right advisors for you and your family will be equipped to help you with the more delicate points of wealth planning.
- Goldseeker, S. and Moody, M. (2017). Generation Impact: How Next Gen Donors Are Revolutionizing Giving. Hoboken, NJ: John Wiley & Sons, Inc.