Personal Finance

Don't expect Mom and Dad to clue you in on your inheritance

Key Points
  • Right now, you can transfer up to $11.4 million to your heirs without facing the 40% estate tax.
  • Eight out of 10 financial advisors say that few of their clients involve their children and grandchildren in philanthropy, a survey from Key Private Bank found.
  • Charitable bequests lower your tax bill, yet just over 25% of advisors say this is a motivation behind clients’ donations.
Grandfather and grandson walking on the country road
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Apparently, your rich grandpa can't donate his fortune to charity in peace.

While handing off wealth to the next generation is a major component of estate planning, few people discuss their philanthropic goals with their heirs.

Indeed, 8 out of 10 financial advisors said that "some" or "hardly any" of their clients involve the next generation in family philanthropy, according to a recent survey from Key Private Bank.

The bank polled 122 financial advisors online in June and July.

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It would benefit the older generation to get their kids involved in the process, as the two often don't see eye to eye on philanthropic causes.

For instance, 73% of advisors said that faith-based issues tend to get the most support from parents, while close to 6 out of 10 advisors said children are the biggest supporters of environmental causes.

"I rarely meet a client who involves their kids and grandkids in philanthropy," said Anne Marie Levin, national director of family wealth legacy planning services at Key Private Bank.

"It's one of the biggest mistakes parents make when they think of wealth transfer planning and preparing their kids to be responsible heirs," she said.

Generosity pays

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As of 2019, you can transfer up to $11.4 million ($22.8 million if you're married) to your heirs either in gifts during your lifetime or in bequests at death — and you can do this without facing the 40% estate and gift tax.

Charitable bequests are deductible: They lower your gross estate and in turn reduce the estate tax bill.

"Whether you're leaving assets at death to a donor advised fund or a private foundation, you get a full estate tax deduction," said Charlie Douglas, a certified financial planner and president of HH Legacy Investments in Atlanta.

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Donor advised funds are tax-advantaged accounts that individuals can open at a brokerage firm and fund with cash, securities and other assets.

Effective estate planning goes beyond saving on taxes: Benefactors need to start talking to heirs about their charitable wishes well before they die to ensure the best use of their money.

"It's important to establish the charitable vehicle, whether it's a donor advised fund or a foundation, during the person's lifetime," said Douglas.

"This is to help the heirs understand how the foundation works and the causes that their family will give to," he said.

Welcome conversations

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Here's a conundrum that estate planners run into: What happens when the older generation and the heirs are at loggerheads over which causes to fund?

Hash those issues out up front with these three talking points.

Be open about your own values and causes you wish to support: Whether you donate your time or money to charity, share your motivations with your children. Why do these causes matter to you?

"What kids really want as part of their inheritance isn't just the financial assets, but the context and an understanding of what values were important for Mom and Dad," said Douglas of HH Legacy Investments.

Listen to your children and grandchildren: "Respect their opinions and understand that people don't necessarily agree," Key Private Bank's Levin said.

Younger generations bring a different perspective to the charitable giving conversation, and getting them involved early will prepare them to be good stewards.

Don't rule from the throne: As your heirs get older and devote themselves to different causes, learn to step back. Allow them to lead the charitable effort, and provide them guidance and support.

"Parents tend to be monarchs, telling their children what to do, think and how to act," Levin said. "As children grow older, parents need to consciously move toward being a mentor, rather than a monarch."

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