When preparing your legacy to pass on to your heirs it’s important for them to understand what will happen after you pass. They should know their future roles and responsibilities. It is your job to prepare them. If taking over the family business or philanthropic foundation is an important piece of your legacy, educate your heirs on the duties and responsibilities associated with the management of the business.
Prepare Your Heirs for any Eventuality
Review all legal documents with your heirs so they are not surprised by anything when you pass. Have your children review an inventory of all of your assets and investments. Ask them to explain the structure of all trusts, partnerships and corporations; and the plan for each of those after your death.
Have your heirs demonstrate working knowledge of the trusts and systems you have in place. Regular meetings with the trustee will help your heirs understand the decisions being made. Have them take on the responsibilities of the trustee and show you what decisions and investments they would make. This will increase the financial literacy of the heir and reduce potential disagreements with the trustee.
If you’re worried your heirs will have no work ethic or will otherwise waste their lives living off of their trust, have them draft a strategic plan for their lives. Start with a goal, such as opening their own business, taking over the family business, running a charity, or doing scientific research. Have them draft the steps and education necessary to accomplish their goal.
As your family accumulates wealth, teach your children about the assets you acquire. Explain to them the reasons you acquired them, how your family will use them, and what will happen to them when they are passed on. Explain to your family the reasons behind the financial decisions you make, so that your children are not intimidated by you and are confident that they can make good decisions on their own. It is a good idea to have children attend trust meetings starting in their teens so they can learn more about how to intelligently manage money.
Teach Your Children Now to Avoid Pitfalls Later
Sometimes it can be a good idea to teach your children basic financial principles. If your children are used to having a bookkeeper pay their bills, a good first step is to have them pay their own bills from their trusts, with the trustee acting as an intermediary. Have them keep track of their expenditures and discuss appropriate spending levels. Next, give them enough information to be able to read and understand their quarterly investment report. Illustrate to them how overspending can take a very safe financial plan and destroy it. This will prepare them to live within the means provided by the trust and not treat their inheritance like lottery winnings.