Do your heirs know what they'll inherit?
March 13, 2013
Talking about money with the people closest to you can be awkward. When you're also talking about death and inheritance, it becomes even more difficult. But whether the sum you plan to leave your heirs is large or small, talking about it gives them the opportunity to prepare financially and emotionally.
"Even if they don't master all the details, talking about an inheritance—and the financial decisions they'll likely have to make as heirs—is a sort of emotional insurance policy that can help minimize the emotional toll," said Catherine Gordon, who leads Vanguard Investment Counseling & Research.
Prepare them for a potential windfall
If it's a large inheritance, there's a risk that your heirs will be unprepared to manage it wisely. According to a report by the National Endowment for Financial Education, an estimated 70% of those who get a financial windfall are likely to lose it within a few years.
The biggest danger? Impulse purchases that can quickly deplete even a substantial sum. When you let your heirs know about what they'll inherit well in advance, they can adjust their long-term financial plans. Knowing how much they'll inherit can help them control the impulse to spend the "found money" during an emotional time.
Help prevent hurt feelings
Perhaps you're planning on leaving a larger inheritance to one heir and smaller sums to others. A common situation is when one child inherits a home or family heirloom, while a sibling gets a smaller sum or item of lesser value. Talking about the disparity and the reasoning behind your decision can help prevent shock during an already emotional time. It also gives each heir a more realistic picture of his or her financial future.
Inheriting a Vanguard IRA®?
When a loved one passes away, there are some financial decisions you need to make if you're an heir to a Vanguard account. Our associates are here to help make this process easier for you.
Alert them to tax consequences
You may have worked with a professional to develop a wealth transfer plan that seeks to minimize taxes, especially if you have a larger estate. But you—and your financial planner—may have focused more on your tax consequences than the ones your heirs may face from receiving an inheritance. Knowing about a possible inheritance gives your heirs the opportunity to consult with a tax or financial advisor to understand—and plan for—those consequences.
Consider building a family legacy of philanthropy
Many families have a tradition of philanthropy that spans generations. You may decide to support a favorite charity as part of your estate plan—perhaps through a donor-advised fund, such as one offered by Vanguard Charitable. Involving your loved ones in building a legacy of giving can make a difference in their lives, as well as to the causes you support.
Keep the conversation going
"A lot of people think that after they go to a lawyer and prepare a will and power of attorney, they sign it and they're done," said Alisa Shin, a senior wealth planner with Vanguard Asset Management Services™. But experts recommend that you review your estate plan every three to five years to make sure it reflects changes in your family and financial circumstances, as well as changes in the law.
"Circumstances can change, so it's a good idea to leave some room for flexibility in your estate plan," said Ms. Shin.
It may feel awkward, but sit down with your family; prepare them for whatever may come. This can help them prepare for any financial issues they may face—and allow them to deal with more important matters when the time comes.
- All investing is subject to risk, including the possible loss of the money you invest.
- Vanguard Asset Management Services are provided by Vanguard National Trust Company, which is a federally chartered, limited-purpose trust company operated under the supervision of the Office of the Comptroller of the Currency.
- We recommend that you consult a tax or financial advisor about your individual situation.