Inheritance Planning: How to Prepare Your Kids

Jul 17, 2023 2 min read

Parents often spend time and money to ensure that their estate is organized properly, but those efforts could be in vain if they don't also ensure that their children are prepared to receive that wealth. In fact, a decades-long study of 2,500 families found that 70% of family fortunes run out by just the second generation. By the third generation, that figure increases to 90%. Here’s how to empower your children to oversee and sustain inherited assets for generations to come.

The Importance of Financial Education in Inheritance Planning

One of the challenges when it comes to building generational wealth is that you’ll have limited control — if any — over how your children will manage the assets you leave behind. That means one of the most important things you can do to build generational wealth is to teach your children about financial health and help them develop good financial habits. Even if you don’t have many assets to pass on, teaching them how to budget, how to manage debt and how to save money will give them the skills needed to make smart financial decisions in the wake of inheriting money. 

What Is the Best Way to Leave an Inheritance?

Approximately one in three Americans who receive an inheritance blow through all of it within two years. The best way to ensure your children don’t do so is by preparing them ahead of time. These four steps will help ensure that your kids have a strong financial foundation.

  1. Communication and Education

Having transparency around finances is important in helping your kids make smart choices about money while they’re young and setting them up to handle a large sum of money when they receive an inheritance. Have open conversations about money at all ages and allow them to ask questions and provide input. Share with them your intentions around an inheritance so they know what to expect. 

Give them opportunities to learn while you’re there for support; let them grocery shop for the family for a week, allow them to assist in doing the math around a new car payment and ask them to budget the costs for the new pet they’re asking for.

  1. Lead by Example

It’s no secret that kids tend to mimic the behaviors of their parents. From wealth management to day-to-day spending, show how them what it looks like to live a financially responsible life by practicing what you preach. 

  1. Encourage Financial Responsibility

Writing a spending plan or budget can help your kids learn accountability for his or her finances. Your ultimate goal is to teach them how to achieve a balance between money coming in and going out. An allowance is an effective first step in teaching your child about financial responsibility. With allowance money and a savings account in hand, your child can begin saving and budgeting for the things they want. 

  1. Teach Them Gradually

When it comes to wealth transfer strategies, consider a plan that transfers assets using structured arrangements over time. Giving someone a lump sum inheritance can lead to unnecessary spending and financial decision-making.

Get Professional Guidance

From tax professionals to financial advisors, it’s often a good idea to enlist a team of experts to help with inheritance planning. Farm Bureau Financial Services is dedicated to being your resource in protecting and preparing for your future — connect with an agent today

Want to learn more?

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