The Hardest Part of Passing On Wealth Isn't the Money

America is in the middle of the largest wealth transfer in history, and the families who keep it are not the ones with the best investments. They are the ones who brought their children to the table early. The first in our Both Ends of the Table series.

Read the full article: https://news.americanretirementadvisors.com/how-to-prepare-children-to-inherit-wealth/

American Retirement Advisors helps families in Arizona and Nevada navigate healthcare, retirement income, and inheritance planning. Want to reach out? Text us at (602) 281-3898, email support@americanretire.com, or visit https://americanretirementadvisors.com.

Transcript

SPEAKER_00 0:01

Welcome to the American Retirement Advisor, coming to you from One to Three Studios. Real stories, real strategies, and straight talk about healthcare, retirement income, and inheritance planning. I'm Ian Schaefer, joined with Eddie and Betty. Let's get into it.

SPEAKER_04 0:16

Welcome to the American Retirement Advisor Podcast. I'm Betty, and with me, as always, is Eddie. Today we're starting something brand new that I think is going to really resonate with a lot of our listeners. Ian Schaefer wrote about what he calls both ends of the table. And when I first read that phrase, I just thought, yes, that's exactly where so many families are sitting right now.

SPEAKER_05 0:42

It really is. And Ian's talking about people who are in this unique position where they're receiving an inheritance from their parents while simultaneously trying to figure out how to pass wealth to their own children. Sometimes those two things are happening at the exact same time, but most planning advice only looks at one end or the other.

SPEAKER_04 1:02

Right. And the timing of all this matters so much because we're living through what researchers are calling the largest wealth transfer in history. The numbers are just staggering. That's such an important distinction. Because when you really think about it, money can be a blessing or it can be a burden, depending on how it's handled. So what does Ian say is the key to making sure it's the former?

SPEAKER_05 1:53

Well, he starts with what he calls a hard truth. The money itself is actually the easy part. Moving dollars from one account to another, that's a solved problem. The hard part, the part that really determines whether a legacy lasts, is preparing the people who are going to receive that money.

SPEAKER_04 2:12

And that makes perfect sense when you think about it. I mean, you can have all the legal documents in the world, but if the person receiving the inheritance doesn't understand the responsibility that comes with it or the values behind it, then what?

SPEAKER_05 2:26

Exactly. And Ian's point is that the single best thing you can do is bring your children into the conversation early while you're still alive to guide them and explain things, instead of leaving them with what he describes as a pile of assets and a stack of paperwork to decode after you're gone.

SPEAKER_04 2:44

That image really paints the picture, doesn't it? I'm thinking about families where the first time the kids really understand the family's financial situation is when they're sitting in a lawyer's office after the funeral. That has to be overwhelming.

SPEAKER_05 2:57

It absolutely is. And there's actually research behind why that approach fails so often. Ian references some work by Royne Williams and Vic Pricer from their book Preparing Heirs. They looked at over 3,200 families and found that roughly 70% of wealthy families lose their wealth by the second generation.

SPEAKER_04 3:17

70%? That seems incredibly high.

SPEAKER_05 3:21

It gets worse. By the third generation, they found it was 90%. Now, Ian notes that other researchers have questioned whether those exact numbers hold up across all families, since this came from one firm's client base rather than a broad study, but the general direction isn't really disputed.

SPEAKER_04 3:40

So what's causing this? Are families making bad investments? Are they getting terrible financial advice?

SPEAKER_05 3:46

That's what you'd think, but no. Ian says the cause is almost never bad investments. It's silence. Heirs who were never prepared, never told the why behind the wealth, never brought into the conversation until it was too late.

SPEAKER_04 4:00

That word why feels so important here. Because I imagine there's a big difference between a child who understands why their family saved and invested and worked to build wealth, versus a child who just suddenly has a lot of money.

SPEAKER_06 4:15

Absolutely. And you know, there's this old saying: shirt sleeves to shirt sleeves in three generations, the idea being that the first generation builds the wealth, the second generation spends it, and the third is back where they started.

SPEAKER_04 4:29

I've heard that before, but I never really thought about why it happens. So how do families break that cycle? How do you bring children to the table without overwhelming them?

SPEAKER_06 4:39

Ian says the families who beat the odds do one pretty unglamorous thing.

SPEAKER_05 4:44

They talk early and often while everyone's still healthy. But it's not about handing a 30-year-old a full accounting of your net worth. It's about slowly bringing them into the room.

SPEAKER_04 4:56

What does that look like in practice? Because I think a lot of parents struggle with knowing where to even start that conversation.

SPEAKER_05 5:03

Well, Ian suggests starting with values and roles, not numbers. Things like who would handle things if something happened to you, where important documents are kept, what you hope the money does for the family, and just as importantly, what you hope it doesn't do.

SPEAKER_03 5:18

That's really smart, because those are the kinds of conversations that build understanding over time, rather than dumping everything on someone at once.

SPEAKER_05 5:27

Exactly. And Ian makes this great distinction. He says a child who has sat at that table a few times becomes a steward. A child who's handed everything cold becomes a statistic.

SPEAKER_03 5:38

A steward versus a statistic. I love that way of putting it. Because a steward understands their responsibility to preserve and protect what they've been given, right?

SPEAKER_05 5:48

Right. And this connects to something Ian wrote about that really resonates with our previous series on legacy planning. He says that documents can move money, but they can't pass on judgment, values, or the story behind what you built.

SPEAKER_04 6:01

So you can have the most perfectly crafted will or trust in the world, but if your children don't understand the heart behind it, you're missing the most important piece.

SPEAKER_05 6:11

That's it exactly. When you explain why you saved, what you're proud of, what you hope they do with the inheritance, Ian says you're handing down what he calls the operating manual. Money with no context tends to evaporate. Money with meaning attached tends to last.

SPEAKER_04 6:26

The operating manual. I think that's such a helpful way to think about it. Because you wouldn't hand someone the keys to a complicated piece of machinery without explaining how it works, would you?

SPEAKER_05 6:37

No, you wouldn't. And there's another layer to this that Ian talks about that I think catches a lot of successful families off guard. Once there's real money in motion, especially when you're dealing with both ends of the table, receiving an inheritance and planning to pass wealth, the challenge changes. How so? Well, Ian's point is that at this level, the problem isn't whether your investments will grow. It's whether all the moving pieces are actually talking to each other.

SPEAKER_04 7:02

What kinds of moving pieces are we talking about?

SPEAKER_05 7:04

Think about it. You've got retirement accounts, tax implications, estate documents, beneficiary forms that need updating, maybe an inheritance that's still being settled, and your plan for passing wealth to the next generation. When all of those are handled by different people who never speak to each other, things fall through the cracks.

SPEAKER_02 7:23

Oh, I can see how that would happen. Your accountant knows about the tax situation, your attorney knows about the estate documents, your financial advisor knows about the investments, but nobody's looking at how it all fits together.

SPEAKER_05 7:36

Exactly. And that's why Ian emphasizes the value of having a coordinated team that can look at the whole table, both ends of it, at the same time.

SPEAKER_04 7:45

That phrase both ends of the table really captures something important about this stage of life, doesn't it? Because if you're fortunate enough to be in this position, you're sitting at the head of the family table with your parents' legacy coming from one side and your own children on the other side.

SPEAKER_05 8:01

And Ian says most people's instinct is to treat those as two separate events handled years apart, but the families who do this best treat them as one connected story planned together.

SPEAKER_02 8:12

So instead of thinking, okay, first I'll deal with mom and dad's estate, and then later I'll worry about planning for my kids, you're thinking about how it all connects.

SPEAKER_05 8:22

Right. What you receive, how it's taxed, what you keep, what you give, how you prepare the people who will receive it next. Ian puts it as both ends, one table, one plan.

SPEAKER_02 8:35

Now, I know some of our listeners are probably thinking about that $124 trillion number you mentioned earlier. Can you put that in perspective a little bit? What exactly is meant by the great wealth transfer?

SPEAKER_05 8:47

Sure. That's the term researchers use to describe the roughly $124 trillion that Cerulee Associates estimates will pass from older generations to their heirs and a charity through 2048. The majority of that is coming from baby boomers and older households.

SPEAKER_04 9:04

And this is the largest transfer of wealth in history?

SPEAKER_05 9:07

That's right, which means a lot of families are going to be dealing with these both ends of the table dynamics, probably more than ever before.

SPEAKER_04 9:15

So let's get practical for a minute. One question I think a lot of parents wrestle with is whether they should tell their children what they're going to inherit. What does Ian say about that?

SPEAKER_05 9:25

He addresses this directly, and his answer is nuanced. You don't have to hand them a full balance sheet, but bringing them into the conversation early, starting with your values, your wishes, where documents are kept, consistently produces better outcomes than leaving them to find out after you're gone.

SPEAKER_04 9:42

So it's not necessarily about the exact dollar amounts, especially early on. It's more about building that foundation of understanding.

SPEAKER_05 9:50

Exactly. Ian suggests starting small and building trust over time, which makes sense because these conversations can feel really vulnerable for parents.

SPEAKER_04 9:59

Oh, absolutely. I think there are parents who worry that if their kids know there's an inheritance coming, they might not work as hard or they might make poor financial decisions.

SPEAKER_05 10:09

Those are valid concerns, but Ian's argument, backed up by that research on why wealth doesn't last, is that the bigger risk is silence. The bigger risk is leaving them unprepared.

SPEAKER_04 10:20

That makes sense. Now Ian mentioned something called a family meeting. What is that exactly?

SPEAKER_05 10:25

Ian describes it as a guided conversation, often with a neutral advisor present, where a family talks through wishes, roles, and plans together, rather than one person at a time.

SPEAKER_04 10:37

So instead of dad having one conversation with son and mom having a separate conversation with daughter, everyone's in the room together hearing the same thing.

SPEAKER_05 10:46

Right. And having an advisor there takes the pressure off any single family member to start or facilitate the conversation. It also helps ensure everyone's working from the same page.

SPEAKER_04 10:56

I can see how that would be really valuable. Because family dynamics can be complicated, and having a neutral person guide the conversation probably helps keep things on track.

SPEAKER_05 11:08

Absolutely. And I think one thing that's important to emphasize is what Ian says about timing. None of this has to happen all at once. In fact, it tends to go better when it's spread out over time.

SPEAKER_04 11:19

That probably makes it less overwhelming for everyone involved. You can have one conversation about values, maybe another one about where documents are kept, another about roles and responsibilities.

SPEAKER_05 11:31

Exactly. And Ian mentions that it tends to work better with someone in the room whose job is to see the whole picture. That's actually what our team does in what we call an inheritance planning meeting. Can you explain what that looks like? Sure. We help families bring the next generation to the table, coordinate the receiving end and the giving end together, and then keep it all organized afterward in something called our beneficiary box, so nothing lives only in one person's head.

SPEAKER_04 12:00

That last part sounds really important. Because I imagine one of the challenges with these family conversations is making sure all that information gets documented and preserved somewhere.

SPEAKER_05 12:11

Absolutely. You can have the best intentions and the most thoughtful conversations, but if it's not organized in a way that people can actually access when they need it, you're back to square one.

SPEAKER_04 12:21

Now, I want to circle back to something you mentioned earlier about all the moving pieces needing to talk to each other. Can you give me an example of what it looks like when they don't?

SPEAKER_05 12:32

Sure. Let's say you inherit some money from your parents, and it pushes you into a higher tax bracket. Meanwhile, you're also trying to do some gifting to your own children. If your tax person doesn't know about the inheritance timing and your estate planning attorney doesn't know about your current tax situation, you might miss opportunities or accidentally create problems.

SPEAKER_01 12:54

So you could end up paying more in taxes than you need to, or structuring the gifts in a way that's not optimal.

SPEAKER_05 13:00

Right. Or here's another one. Maybe your beneficiary forms on your retirement accounts don't match what your will says because they were updated by different people at different times. That can create real headaches for your family later.

SPEAKER_04 13:14

Those sound like the kinds of details that are easy to overlook when you're dealing with everything separately, but could have big consequences down the road.

SPEAKER_05 13:23

Exactly. And I bet our team at American Retirement Advisors could tell stories about families who've run into exactly those kinds of coordination problems. The specifics can get pretty complex depending on the situation.

SPEAKER_04 13:36

This conversation has me thinking about families who might be listening and realizing they're sitting at both ends of the table right now. Maybe they've been thinking about their aging parents' situations separate from their own legacy planning, and now they're seeing how it could all fit together.

SPEAKER_06 13:51

That's exactly what this series is designed to help with. Ian mentions that the next piece will focus on what he calls the inheritance you can see coming and how to prepare before a parent's estate actually settles.

SPEAKER_04 14:04

That sounds really practical, because there's probably a lot you can do to prepare while everyone's still healthy and able to have those conversations.

SPEAKER_05 14:13

Absolutely. And I think the overarching message from Ian's piece is that this doesn't have to be as complicated or as scary as a lot of families think it is, but it does require being intentional about bringing people into the conversation.

SPEAKER_04 14:26

You know what I keep coming back to? That image of the child who becomes a steward versus the child who becomes a statistic. Because at the end of the day, that's what this is really about. It's about setting up the people you love to succeed, not just financially, but as human beings who understand the responsibility and the opportunity that comes with what they've been given.

SPEAKER_05 14:50

That's beautifully put. And I think for families who are ready to start having these conversations, whether it's about bringing their own children to the table or coordinating both ends of their planning, it really does help to have someone guide the process who's done it before.

SPEAKER_04 15:04

If you're listening and thinking about your own family situation, whether you're expecting to receive an inheritance or planning to leave one, or, like so many people, dealing with both at the same time, I'd encourage you to reach out and have a conversation with our team. They can help you think through how to bring your family to the table in a way that feels right for your situation. You can reach them at American Retirement Advisors at 602-281-3898. And of course, we'll be back with the next episode in this both ends of the table series. Thank you for listening.

SPEAKER_05 15:41

A quick note before we wrap up. Today's episode covers financial topics for educational purposes only. American Retirement Advisors does not provide tax or legal advice. Please consult a CPA or tax professional before making any decisions based on what you heard today.

SPEAKER_04 15:59

This is Betty with the American Retirement Advisor. Thanks for listening. If this episode helped you think differently about your retirement, share it with someone who needs to hear it. You can read the full article and browse hundreds more at AmericanRetire.com. Wanna reach out? You can text us at 602-281-3898. Or email support at AmericanRetire.com. Be sure to subscribe so you never miss an episode. We publish daily. See you next time.

SPEAKER_00 16:33

Thanks, Eddie. Thanks, Betty. Until next time, this is Ian Schaefer coming to you from 123 Studios. I hope you've enjoyed this recording of the American Retirement Advisor, where we make healthcare, income, and inheritance planning 223 easy.