[Originally written December 2015; updated October 2020]
Though effective estate planning can take several years to set up, many adult children say that this is something that shouldn't be too strenuous for themselves to put together, thanks to the financial obligations parents have to their offspring, a recent poll has found.
"More than 50 percent of millennials say parents are required to leave an inheritance behind."
Over half of millennials living in the United States – men and women in their 20s and 30s – say that parents have a responsibility to leave an inheritance for their children prior to their passing, according to a new survey conducted by the Pew Research Center. This contrasts sharply with their adult peers, as just over 1 in 3 – 36 percent – of 30- to 49-year-olds feel the same way and only 28 percent of those between 50 and 64 years of age.
U.S.-based millennials are more likely to express this sentiment than their Italian contemporaries, Pew reported from its poll. Slightly more than 1 in 4 said parents had a duty to hand down what earnings they had saved up over their lifespan, on par with 50- to 64-year-olds. The least likely to believe this were respondents ranging in age from 30 to 49, as just under a quarter indicated parents were financially duty-bound.
Meanwhile, among German millennials, 1 in 5 feel parents should leave an inheritance to their kids, the least likely of all 18- to 29-year-olds surveyed, the Pew Research Center poll discovered. Only 18 percent of respondents ranging from 30 to 49 felt similarly and less than 1 in 10 of participants between the ages of 50 and 64.
While the debate may rage on about whether parents are indeed financially beholden to leave a financial legacy for their kids, there are several important rules of thumb to ensure that an inheritance is maintained properly when it's tapped into:
Establish a trust
Instead of divvying up the money in a cavalier or subjective fashion, financial advisors strongly recommend setting up a trust, where access to the funds depends upon satisfying certain requirements. For instance, some trust funds may not be redeemable until the beneficiary reaches a certain age. Similarly, the funds allocated may be contingent on what the beneficiary makes per year in salary earnings.
Distribute as equally as possible
Parents who want to leave an inheritance may have differing opinions about who should get what and how much is appropriate for each child. If at all possible, distribute the funds equally to avoid drama that can result in the aftermath, as some may not feel like they're getting a fair share. If there are reasons for the unequal distribution, this should be made clear.
Be upfront about what's been saved
Adult children who are left an inheritance may have some preconceived notions about what their share will be, only to be surprised by a different total once the inheritance is distributed. Instead of "flying blind," consider discussing with the executor(s) what's been saved so everyone is prepared well in advance.
Avoid lump sums
The owner of an inheritance can decide how the funds will be distributed, be it all at once – in the form of a lump sum – or in installments. The former can lead to the proceeds being used improperly, sapped up in a short period of time due to poor management. Instead, establish an inheritance that pays out in intervals, whether it be incentive-based, age-based or earnings dependent.
Leveraged Planning is potentially one of the more effective financial planning vehicles that fuels an inheritance with wealth creation. For more information on how the program works, contact a Financial Services Manager today.