Often, one of the hardest decisions people make in the estate planning process is how much (and when) to tell their children or other heirs about their plans.
There is no single right answer for everybody: what to do depends on the nature of your planning and your family circumstances. But it is worth giving the issue some consideration.
Many people are hesitant to reveal the details of their family's expected inheritances. A recent survey by UBS of almost 3,000 investors showed that only 54% had discussed their estate plans with their heirs, and only 34% had mentioned specific dollar figures.
Many parents say that they fear that if their children find out that they can expect a substantial legacy in the future, they will be less likely to work hard and save in the present.
Another worry is that revealing an estate plan could lead to family squabbling and resentment. This is especially true if you plan to leave unequal inheritances to family members.
Imagine a family where one child is a successful banker, while the other earns little money but does socially valuable work for a non-profit. If the parents leave more money to the poorer child, the banker might feel resentful and unloved. But if they leave everything in equal shares, the poorer child might feel slighted and misunderstood. Many families will simply avoid talking about the subject in order to keep the peace.
If there is a blended family with children from a prior marriage, things can get even more complicated.
While it can be difficult, there are also some very good reasons for having a detailed talk with your family about your estate plan.
For one thing, if there is a chance of family squabbling and bitterness, it can be better to tell everyone what to expect now while you are still alive and have a chance to explain your motives and smooth things over. You could explain, for instance, why you are leaving more assets to a child with a large family than to a child who is single, or why you are leaving money to a charity that has always been important to you.
In fact, the UBS survey showed that heirs who weren't told in advance about inheritance arrangements were more than twice as likely to be unhappy about them afterwards.
Another thing to consider is that, if someone dies suddenly, the family is often left very confused about finances. They don't know what assets there are or where they are located, and searching for them can be extra stressful when the family is already suffering the grief of losing a loved one. If you discuss your assets and plan now so that everyone knows what to expect, it may make things much easier after you pass away.
In addition, many parents who talk about their plan with their children are surprised to discover their children sometimes have good ideas. If a family owns a vacation home, for instance, the parents might have one thought about what do with it, but the children might come up with a plan that better protects the home and better suits their future needs.
Talking with your children also allows you to coordinate your estate plan with your children's own estate plans. You might discover, for instance, that the whole family can save taxes if you give more assets directly to your grandchildren, or create trusts for your children instead of leaving assets to them outright.
The bottom line is that each family is different and the issue of whether or not to discuss your estate plan with your family is ultimately your decision to make. The advice I always provide to my clients is that some information, even if it’s not the whole story, is probably good to share with your children or heirs of your estate plan because, inevitably, there’s always an amount of confusion and anxiety among heirs after the parents’ deaths.