It’s hard, but it’s harder to ignore it
There has been quite a lot of media comment in the US recently discussing how to tell children about their inheritance, and when. This flows from the fact that during 2012, there is a window in the US in which those who have not made gifts (and of course it helps to have the assets with which to make them in the first place!) can give up to USD5,120,000, which is the current gift tax exemption (our nil-rate band). So a US husband and wife can currently make gifts of a sum approaching USD10,250,000, which, in anybody’s book, is a substantial sum of money. At the end of this year, although there is no certainty about what will happen, the exemption is likely to be reduced to something like USD1 million.
Much of the media comment has been written from the donee point of view: how they wished that it had happened differently. This gave the impression that there is only one way of telling children, and that using that game plan all will be well.
“There is no education in personal finance. How many parents discuss this?”
I think that it is difficult to generalise. We are in a world where children are expected to get higher and higher marks in public exams, but there is no education (in the broadest term of that word) in personal finance. How many parents discuss these issues? And is this because we have been self-taught ourselves? Of course, parents fear that children will go off the rails or that, if children get money too young, they will do the wrong things with it. Maybe that is a reflection of their own regrets about what they did with money when they were young. Maybe children will do the wrong thing to start with, until their lives change with the taking on of responsibilities. Many of us look back on our young adulthood and recognise that it was the time of the maximum of privilege with the minimum of responsibility. We never knew that then!
If we accept that we should encourage our clients to talk to their children about the balance of privilege and responsibility, which is the essence of inheriting money, our clients may still be nervous because they did not have any training themselves. But lack of knowledge does not mean a lack of intelligence, and maybe some humility about the lack of knowledge would motivate the children to know more. And, as advisors, we have the knowledge that we can give. The problem is that having imparted that knowledge, it is a different thing from saying that the children should deal with it as the parent would have dealt with it. Parents, as donors, have to learn how to give up control. If control is important, unless you can use a trust or another control mechanism, you may struggle to achieve what you want. But that does not mean that the next generation of inheritors will not be capable, it just means that they will not be mirror images of their parents.
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