How to Talk to Ageing Parents about Generational Wealth

May 26th 2023 | Categories: Money, Family & Relationships |

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Whilst it can be an uncomfortable topic for some, talking about finances is a necessary conversation to ensure ageing parents’ needs are met, that their financial affairs are in order and that they understand the complexities around generational wealth. Generational wealth simply refers to the transfer of money from one generation to the next and how that money can be best handled to avoid taxes etc as we reach the second half of our lives. This might include cash, investment funds, stocks and bonds, real estate properties and other forms of wealth. Here at Invest Blue, we also believe generational wealth means passing on your wealth of financial knowledge so that your family are set up to live their best possible life, no matter what your personal or family circumstances may be. Here are 10 tips to help kick-start the conversation of generational wealth…

1. Start the conversation early

It’s important to start talking to your parents about their finances early on, ideally before any issues arise. This will give you and your parents time to plan and prepare for their future needs. Don’t forget that it is also important that you are transparent and open with your parents about your own financial situation and your own plans and expectations for your wealth. This can help facilitate an open and honest conversation about finances that will ensure that everyone is on the same page.

2. Choose the right time and place

Choosing a time and place where your parents feel comfortable and relaxed to discuss generational wealth is one of the most important factors as financial conversations can be sensitive and emotional so ensure that everyone is in the right frame of mind to have a productive and constructive discussion.  Generational wealth can also be a complex and time-consuming process so choosing a time when everyone is able to dedicate the necessary time and energy to the conversation can help ensure that all issues are addressed thoroughly. For this reason, it can be best to work with a Financial Planner to ensure that all parties are adequately prepared and informed about the issues being discussed, which can lead to better outcomes and more effective decision-making. Finally, discussing generational wealth can involve topics that can be difficult to broach such as inheritance, financial planning, and end-of-life care, and choosing the right time can help ensure that these issues are addressed sensitively and respectfully.  

3. Listen to their concerns

Talking about finances can be a sensitive topic, and it’s important to approach the conversation with sensitivity and empathy. Be respectful of your parents’ privacy and avoid being judgmental or critical. Your parents may have concerns or fears about discussing their finances. Listen to their concerns and try to address them. It may be helpful to reassure them that you are not trying to take control of their finances, but rather, want to make sure that they are well taken care of. 

4. Have a plan

Before you start the conversation, have a plan in place. Make a list of topics that you want to discuss, such as income, expenses, assets, debt management, superannuation, and any plans for retirement or long-term aged care. This will help you stay focused and ensure that you cover all of the topics that are important to both you and your parents. A plan will also help to ensure that any conversation about generational wealth will be productive, focused, and addresses all the key issues and concerns that need to be discussed as well as develop a roadmap for achievement of your combined goals. Additionally, having a plan can help ensure that everyone is on the same page and has a clear understanding of the issues being discussed. This can help prevent misunderstandings, confusion, and disagreements that can arise when discussing complex and sensitive topics such as generational wealth. The benefit of working with a Financial Planner to develop a plan to achieve generational wealth within your family is that they can also help facilitate more effective communication and decision-making as a third party. By establishing a clear framework for the conversation, a Financial Planner can help to ensure that everyone can express their opinions and concerns, and the discussion can be guided towards productive outcomes and solutions for all involved. 

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5. Understand their financial situation

Building generational wealth involves accumulating and preserving assets and resources that can be passed down from one generation to the next. To do this, it’s important to understand your family’s current financial situation, including income, expenses, debts, assets, and liabilities.  This information can help you identify areas where you can save and invest to grow your family’s wealth over time. It can also help you avoid potential financial pitfalls and make informed decisions about where to allocate resources to maximize the potential for future growth.  By having a clear understanding of your family’s current financial situation, you can maintain a plan that will help you build and maintain generational wealth, ensuring that future generations will have the resources they need to thrive.  

6. Consider their goals and priorities

Talking to your parents about their financial goals and priorities is crucial. This can include things like paying off debt, saving for retirement, or planning for long-term aged care.  Not only does it allow you to align your own goals and aspirations with those of your parents, ensuring that you are both working towards the same objectives but it also helps you to understand their values and beliefs around wealth and money, which can shape the way they approach financial planning and decision-making. This understanding can be essential for effective communication and collaboration when it comes to building generational wealth.  Additionally, knowing your parent’s goals and priorities can help you identify any potential conflicts or challenges that may arise and find ways to address them before they become a problem and will also help you to gain insights into their long-term financial plans, which can help you make informed decisions about your own future and financial goals.  

7. Discuss their estate plan

Discussing estate planning is a critical aspect of generational wealth that should be discussed with the family. This includes talking to your parent’s about their will, power of attorney, and any trusts that they may have. This will ensure that their wishes are carried out and that their assets are distributed according to their wishes. An estate plan outlines how a person’s assets will be distributed after they pass away, and it is a critical tool for ensuring that generational wealth is preserved and transferred efficiently.  By discussing estate plans with your parents, you can ensure that their wishes are known and that their assets are distributed according to their desires. This can help to prevent potential conflicts or disputes among family members and can provide clarity and certainty about the future of the family’s wealth.  

8. Consider the impact of taxes

It’s essential to consider the impact of taxes in Australia when discussing generational wealth with your parents because taxes can significantly affect the transfer and preservation of wealth across generations. Australia has a complex and evolving tax system that includes various taxes on income, investments, and inheritances.  This may involve consulting with a Financial Advisor or tax professional to determine the most tax-efficient way to transfer your wealth. For example, if your parents have significant assets that they plan to pass down to you and/or your siblings, it’s crucial to consider the impact of capital gains tax (CGT) on these assets. CGT is a tax on the profit made from the sale of assets, such as property or shares, and it can significantly reduce the amount of wealth that is transferred between generations. There may also be certain duties and taxes on estates, gifts, and other forms of wealth transfer, which can significantly affect the value of the assets being passed down to future generations. By considering the impact of taxes in Australia, you and your ageing parents can identify strategies to minimize tax liabilities and maximize the transfer of wealth across generations. This may include setting up trusts, gifting assets during your parents’ lifetime, or using other estate planning strategies to minimize taxes. 

9. Consider the impact on family relationships

Transferring wealth can sometimes cause tension or conflict within a family, so it’s important to consider the impact on family relationships. This may involve setting clear expectations and boundaries, as well as involving a mediator or family counsellor if necessary.  Don’t forget that talking about finances is not a one-time event. It’s important to keep the conversation ongoing and to check in with your parents regularly. This will ensure that their needs are being met and that their financial affairs are in order. 

10. Speak to a Financial Planner

Discussing finances as a family with a financial planner is an essential component of maintaining generational wealth as it will ensure that all parties across generations will receive the best guidance on money management, retirement planning, investments, superannuation, insurance and estate planning thus building a strong financial foundation.  Not only can a financial planner provide valuable expertise and guidance on how to build, manage, and transfer wealth between generations but they can also help you and your parents identify potential financial challenges and opportunities, develop strategies to minimize risks and maximize returns, as well as assist your wider family to create a plan that aligns with your family’s goals and values. Additionally, a financial planner can provide insights into financial planning tools such as trusts, wills, and other estate planning strategies that can help protect and transfer generational wealth. They can also help you navigate the complex tax implications of generational wealth and help you identify strategies to minimize tax liabilities. 

The Bottom Line

In summary, talking to your ageing parents about their finances can be a tough conversation to begin, but it is necessary to ensure that their needs are being met, their financial affairs are in order and that the wider family’s generational wealth is understood.  By starting the conversation early, choosing the right time and place, being respectful and understanding, listening to their concerns, having a plan, understanding their financial situation, discussing their goals and priorities, discussing their estate plan, hiring a financial planner, considering taxes, and the impact on family relationships, you can help ensure that your parents’ financial needs are met and that they are well taken care of. 

Get in touch with us, we can help you map out your coming years and build a financial plan that models out your cash flow needs in line with the things that are most important to you.

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