Estate planning allows you to leave your children assets according to your wishes. However, studies have shown that some people make poor financial decisions after receiving an inheritance – sometimes even losing their entire inheritance.
Several emotional, psychological and behavioral factors contribute to this, including a lack of financial literacy and inheritance guilt. Preparing your children for their inheritance can prevent such a potential reality. Following are two things you can do.
Building financial literacy
Helping a child understand finances can begin very young. Teach them the difference between needs and wants, how to budget, saving, giving and delayed gratification. When they get older, you can introduce real-world budgeting, investing, debt, taxes and wealth building.
Moreover, involve your children in major family decisions, and let them make independent decisions as well. For example, one might run the family business, another may manage a real estate property and so forth. This way, you can guide them while you’re still around. A beneficiary with financial literacy is more likely to make better decisions.
Having conversations about values, money and legacy
When your children understand the family values, how you built your wealth and your intentions for it, they can be better prepared for financial responsibility. Thus, create an environment in which you can have open conversations with them, and they can ask you anything.
It also helps to discuss your estate plan with your children. You don’t need to tell them how much or what assets they will be inheriting. However, you can let them know what to expect and the reason behind your asset distribution. You can introduce them to the professionals on your estate planning team.
Preparing your children for their inheritance can prevent surprises, poor financial decisions and family conflict. This will help them preserve and grow your legacy and theirs. Learn more about other ways to protect your children through your estate plan.
