Today we are talking about the one conversation that nobody wants to have. You made the talk with your kids. No, not that one. You made the talk when your spouse says, we need to talk. No, no, no. Not that one either. Today we are talking about how to talk to your kids about receiving an inheritance. All that.

More on today's episode of The Retire One Show.

Hello and welcome to The Retire One show, the show designed to help you get to retirement, but most importantly, stay retired. I'm your host, Jonathan Rankin. I'm the founder and CEO of Theor and Wolf Management, and I'm joined as always by my lovely co-host. Hi, I'm Melissa Rankin. Thank you so much for joining us.

Happy to be here, and are you happy to be here? Always, always happy to be here. We are. Happy to be back with another episode. Today we were talking about fun conversations, right? Yes. The ones that everybody wants to avoid. Avoid, but you shouldn't. No, you should not. It's the, nobody wants to talk about money, but we're gonna talk about talking about money today.

So before we do that, what do we want people to do? We want you to subscribe. We never want you to miss one of these amazing episodes. No. Join us on this journey, subscribe. Make sure you subscribe also to our weekly retirement newsletter. Comes out every Friday, some good content that we put out there for you every single week.

So hopefully you can hit all of your retirement goals. And our goal is to help over a million people reach their retirement. So, uh, join us on that journey as we try to achieve that mission. So, uh, thank you for being here for part of that. And, uh, yeah, I mean, how many conversations do people want to, you know, tend to avoid?

Tons, tons, but the ones that you avoid are the most important. And that's, especially with everything going on right now with, you know, this generational wealth transfer. That's why we want to talk about how to talk ab to your kids about money. It's extremely important. There's this, uh, ongoing study about how much money is being passed from generation to generation.

It's, it's the largest that you've ever seen. It's astounding. The study shows that there's 84.4 trillion in wealth that's going to be transferred by 2045 84 trillion. Yeah, that's, that is a lot of money. I mean, there are over 73 million baby boomers. The youngest are turning 60 this year. The oldest are getting close to 80.

And when you look at the, the amount of wealth that they hold, you know, right now they hold $78.3 trillion in assets. I mean, just look at this chart from, uh, the New York Times, the amount of money that baby boomers hold. And when you think about back in 8 19 89, the Total Family Wealth in the United States at that time was 38 trillion, and that's adjusted for inflation.

So 38 trillion, but by 2022, You now see it's more than tripled and it's almost 140 million or 140 trillion, huge increase. And you know, they're expecting that 16 trillion of that is going to be transferred within the next decade. So your kids, if you're listening to the show, cuz you're thinking about retiring or you're already retired, your kids are going to be inheriting something most likely, or people in their generation over the next 10, 20, 25, 30 years.

So, It's a lot of money and it's, it's a lot of money. It's important to start to think about that. I mean, this other chart from New York Times shows the, you know, you look at the peak inheritance years. Yeah. By generation, I mean, you look at that curve that millennials have, we're not even near the, the top of that curve.

I mean, this is just in the beginning stages of that. And even Generation X, you know, they still haven't peaked out in their peak inheritance years either. So this is. Gaining, you know, steam, it's getting more important because we're talking about trillions and trillions of dollars. So what are the risks of not discussing inheritance?

Well, you think about, there's studies out there that show that 90% of family wealth is often lost by the third generation. So by not discussing and talking about inheritance, what you're doing is you're not educating your kids that one, they are going to receive something, and two, you don't want 'em to, you don't want 'em to just blow it all within.

You know, one or two years, and we'll get some more of that in a bit. But it's, you know, that's the risk is that you've worked hard. If you're listening to this and you're the one that's gonna be passing your money down, you've worked hard for that money. You know, you got yourself to that position and most likely, at least the clients that we talked to, it wasn't handed to them.

It wasn't given to them. It was something they saved for, they worked hard for, and they wanna make sure that that hard work doesn't just go to waste. I think that many Americans avoid talking about inheritance because they simply don't know where to start. Well, it's not an easy place to start. I mean, where do you start?

Hey kids, let's you know, let's start talking about when I'm passing and you getting this money. No, when I die. Well, and not only that, but there are a lot of fears that that parents have. I mean, parents don't want to talk to their kids about money and give 'em the expectation they're gonna receive something because they don't want them to stop trying at life.

You don't wanna start giving your kids reasons to be lazy. Yeah. A lot. And that's what we find with when we talk to clients is that when they think about having that conversation with their kids, Say, well, I wanna make sure that they're not relying on this money. You know, they don't want to raise entitled children.

So that's a big part of it. You know, they've, the other fear is that their kids aren't prepared to handle this money. You know, that they don't have the education or the knowledge or the responsibility factor to be able to handle receiving a large amount of money. So you, you kind of couple those two things.

It's no, no wonder why one in three inheritances. Are blown within the first two years completely. You know, so think about that two, the first two years. That's, that's astounding. And for the people who are retiring and, you know, you saved for 30 plus years. You hopefully lived a long, good retirement for 10, 20, 30 years in retirement.

And to see all of that, all that discipline, hard work and savings be blown within two years, I mean, I don't know if you believe in ghosts, but you know, that's, that could be something where you, there is a haunted. Yeah. You might come back and haunt someone if that's the case. And you know, the reality is that most children have little to no knowledge of their inheritance plants.

They, you know, they don't know if they're getting anything because it hasn't been discussed. So how should you approach the conversation? Well, if you haven't started that conversation yet, I can tell you right now, it's not gonna be a surprise to a kid that they're gonna get something. I mean, most children know that they're going to receive something based on just your lifestyle.

You know, where you live, the type of home you live your, the way you live life, your, your spending habits. Yeah, your ongoing financial situation. They're gonna have an idea of you're doing well or if you're not doing well. So it's not a secret. But service found that parents, they see their money as their legacy, but more important than that is being able to pass on their values.

So, That's really where you wanna start coming from the conversation is the values part of it. And a good conversation started that we found is, I know this isn't easy to talk about, obviously, but I wanna go over to the inheritance that you'll receive when I'm gone. It's important to me that you're prepared for when the time comes and that that's a great way to start that conversation because it's not saying, Hey Johnny, you're getting a million dollars, right?

What are you gonna do with it? You're not putting them on the spot to figure out how they're going to. Handle this money in the best way that you think they should. But it's starting that conversation about making sure they're prepared, making sure they understand, okay, you're gonna get something at some point.

You know, how do you get them prepared to receive that? Cuz you gotta remember, if they're receiving an inheritance, they're likely also going to be grieving at the same time. Right? And so when you mix those emotions with a large sum of money, You've gotta factor that into the equation. And so I think that's a big part of it as well.

So you want to, you know, if you're a parent out there, you want to talk to your kids about the role that you want money to have in your family's legacy. You know, in that family future. Do you want there to be something that goes to your grandkids for college? How do you want your kids to talk to their kids about money?

I think all of this stuff should be part of that conversation and really more of a values as opposed to. Here's the amount, here's what I want you to do with it. Cuz when you pass, the reality is it is their money. Unless it's in a trust with very strict terms, which you can do. But if you were going to do that, you probably would have that in trust.

Probably would've already been Yes. Set up. And so the it's, it's interesting because research actually shows that kids want to inherit or inherit their parents' values. That's refreshing. It is. That's nice to hear. I mean, it makes me feel good about our kids. I hope that Absolutely. You know, Harvey and Emmy want to inherit our values and that we can pass now, not just money.

No, you, you really hope that, but it's, until I read that, it was something that I didn't realize as well. So, you know, that's gonna be important. But you do want to, you want to establish rules and boundaries. You know, a lot of parents, they don't want to share everything. They just makes sense. You know, they don't want their kids to know everywhere they're spending money or how much money they specifically have, and.

You don't have to tell them exactly what you have. They don't need to know your entire net worth, but they need to know at some point they're getting something and you want to talk to 'em about where all of your accounts are at because by the time you're retired, at least a lot of our clients, they have multiple accounts.

Think of checking, savings, brokerage accounts, IRAs, 401ks, you know, the list goes on and on trying to sort that out after the fact, nightmare. It is a nightmare. We've seen so many clients that were. Children of, of, you know, clients who passed away deal with that. It's never fun because they are grieving at that time.

That's a lot to take on. It is. So you wanna make sure you know that you, you gotta understand. You're not pressured to share the amounts. You don't have to share how much money you have, but let them know what financial institution accounts are at. Let what, let them know where to start, what type of account, what type of accounts even exist.

And where to find account numbers and passwords. That's a big one. Yeah. Because the last thing you want them to do is figure out how to, you know, forgot password on every single one of your accounts just to get a statement. So, you know, getting at least some of those things out of the way can really help.

That makes sense. Why are setting expectations so important? Well, because the goal is to lessen the amount of surprises down the line. You don't want there to be any surprises. For your kids when you pass, you know, you want to be able to talk about how you're dividing up your assets. If you've got more than one kid and there's someone who's getting more than the other, you don't have to tell them why someone's getting more than the other.

You can explain that now, or they can figure it out down the line. But you know, you gotta think about their resentment that's going to create, uh, and that's the hard part. You know, I've seen some parents who have one child and they didn't feel like they're. Their child was prepared to inherit the money, and they always said, I don't think that she's ever gonna be ready to inherit this money.

And that's okay. But you can start having those conversations and setting those expectations that at some point you're gonna get something and you can start building a team around you know that around your child, you know, whether it's a financial advising team, your estate planning team, your C P A.

Putting your child in front of your financial team is important as well. So that's, that is a big part of setting those expectations. So when should you have the talk with your kids? Well, there are a few things that you want to consider. First, before you, do you want to consider your age, your health, and where your kids are at in life?

I mean, if you're young and healthy and your kids are in elementary school, I don't think there's a reason. You know, I'm not talking to our kids about inheritance just yet, but if you're retired and you've got medical issues, And your kids, maybe they're out on their own, they've got their own family and they're at a place where they can handle that conversation.

Then that's maybe when you wanna start broaching that subject before there's any big issue. You know, you're in the hospital and or anything like that. You want to have that conversation early when your kids can handle it. I think that a lot of kids avoid having the conversation because they don't want to appear selfish.

I mean, I, I would say that. The kid's probably never gonna bring it up, I would hope. Yeah. I mean, that's not a normal thing. Hey mom and dad. Uh, quick question. Yeah, it, I would say that if our kids ever brought up how much money they're getting an inheritance, That's where you start reducing that amount.

And when they ask you, why did the other kid get more than me? It's because you asked that question. There you go. That's the rationale. The kid who brings it up first, that's, that's who start to get less. That's what we should actually write that into our will. This is an active, uh, you know, estate planning ongoing.

Right. Exactly. Among investors, actually, 40% wish their parents had been more open about it beforehand. Well, yeah, of course, because everybody knows. That it's a conversation that needs to be had. They know they need to talk about it, but nobody wants to. Kids don't wanna do it. Parents don't want their kids to know what they've got and you know, they'll eventually get it someday.

But with how much money is changing hands over the next 10 years to 20 years, having that conversation now, it's not gonna hurt anything. If anything, it's going to identify issues that you want to get outta the way early if you have the conversation and you get the feeling. Okay. Maybe our kids aren't, aren't ready to, you know, any, inherit this amount of money.

Then that's when you can start putting, you know, steps in place with your trust to be, have more guardrails around when they get access to it so you can have the conversation early. Doesn't mean they're getting the money right then, but you can identify, you know, the real root cause of where they're at at that time.

So what are some of the main takeaways? Well, first, main takeaways. You don't have to disclose how much money you have. You don't have to, I have to have the conversation. Yeah, you don't have to tell them exactly what you've got. I know that's a big fear for a lot of parents, but talk about your values.

Make this about your values, not the amount. You know, talk to 'em about what your wishes are and what's important to you, because those are things that they actually want to hear. Uh, you want to share where your accounts are. Like we said, that's very important because it's gonna help simplify everything.

If you pass. And then lastly, introduce your kids to your financial team if you have one. If you have a financial advisor, you have a cpa, if you have an estate attorney, introduce your children to them. Just, I guarantee you, I know that we do it all the time with our clients. We would love to have conversations with our clients' kids.

It's something we enjoy doing, but it helps that transition. It helps with their familiarity, and it helps, you know, give the parent confidence that something happened to them, that their kids are gonna be taken care of and that. Their money's gonna be taken care of, that they worked hard for. So I know it's not a fun conversation, but it's something that needs to, needs to be had.

And, uh, if you do have questions about it or want any further help on that, you know, reach out to us. We'd be happy to help walk you through that with, you know, other ways to start that conversation. We do it a lot for clients. So, uh, with that, I'm Jonathan Rankin. And I'm Melissa Rankin. Thank you so much for joining us.

Description –

In this episode of The Retire One show, hosts Johnathan and Melissa Rankin delve deep into the subject of generational wealth transfer and the importance of talking to your children about money and inheritance. They shed light on an ongoing study, revealing an astounding $84.4 trillion in wealth expected to be transferred by 2045, primarily from the baby boomer generation.

Johnathan and Melissa discuss the potential pitfalls of not having these crucial conversations about inheritance, citing studies that show 90% of family wealth is often lost by the third generation, largely due to lack of preparedness and financial education. They also address fears that parents may have, like the worry of raising entitled children or children not being ready to handle a substantial amount of money responsibly.

Throughout the episode, they provide valuable tips on how to approach these conversations and the importance of setting expectations to avoid future resentment or surprises. They also stress on the importance of introducing your children to your financial team for a smoother transition of wealth.

This episode serves as an important reminder of the necessity to communicate about your wealth and values, especially in the light of the imminent, massive generational wealth transfer. For anyone looking for guidance on initiating these conversations, this episode of The Retire One show is a must-listen.

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