Money Conversations with Adult Children

The conversations you had with your children when they were young are different than the ones you have with them as adults. Eventually, your children realize the extent of your wealth and it becomes more important to approach these discussions intelligently. This may affect how you manage your assets, and how you might decide to transfer your assets to a future generation.

Considerations for a Common Yet Complex Issue

It’s not uncommon for parents who have grown their wealth substantially over the years to involve their adult children in money decisions. For example, according to Pew Research in 2015, 61% of parents in the US have helped their adult children financially in the past year, and that number increases to 73% for households with higher incomes.

Here are five common areas to focus on when it comes to money conversations with your adult children.

  • Lifetime Gifting: When helping adult children financially, you have two options. Either pass your wealth down through an estate after your passing, or gift portions of your wealth while you are still alive. If you decide to gift portions of your wealth instead of using an estate, you can gift up to $15,000 per year, per child in 2020. Or you may opt to gift stock or other liquid assets, which can then be liquidated by your children with potentially fewer tax implications than if you had sold the asset and gifted cash instead.
  • Charitable Causes: If your children support or are involved in a worthwhile cause, you may decide to donate to their favorite charity, or set up a Donor Advisor Fund. This allows you to create a multi-year donation plan while receiving an up-front charitable tax deduction. The DAF approach gives you the opportunity to review the investments in the fund and decide which causes to support.
  • Business Investment with Family Loans: Your adult children may be passionate about something and want to start a business. If that’s the case, you could provide them with seed money or a business loan to get started. Loaning your child money is a simple way to transfer wealth, especially if you’ve already reached the annual $15,000 gift tax limit. Loaning money to your child provides them an opportunity to invest the loan at a higher rate of return than the interest rate you charge. Be sure to create a formal promissory note, and track payments. If not, the IRS may consider the loan a gift, creating additional tax implications.
  • Your Children and Wealth Manager: It can be beneficial to introduce your adult children to your financial advisor and involve them in money conversations. Even if you don’t want to share the full extent of your wealth with your children, providing them with a valuable resource will help them make smarter financial decisions in the future.
  • Health and Wellness: What are your future plans for your own health and wellness? It’s important to have these conversations with your adult children. This includes housing as you age, as well as the extent of care you wish to receive in old age.

There’s no cut and paste strategy that fits every household when it comes to money conversations with adult children. There are many variables to consider, including how many children there are, their medical needs, and their ability and interest in discussing finances. A financial advisor will work with you and your family to develop a strategy that makes sense for your situation.

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