I Have a Financial Adviser. Is It Time for My Adult Children to Get One, Too?

How They Are Paid Becomes Complex

Even if your son or daughter manages their money well and appears to have great savings habits, their finances may reach a point where the level of complexity warrants much more detailed planning. Examples include those starting their own business; a rising executive who is receiving company stock awards; someone who becomes a partner in a growing business.

Years ago, we worked with a man in his 40s who was promoted to the executive leadership team at a large corporation and started receiving new forms of compensation. He needed help understanding how to navigate stock options, stock appreciation rights, stock ownership requirements, deferred compensation and the related tax implications for each one. We were able to help him navigate these new types of compensation in the most tax-efficient manner to meet his cash-flow needs and optimize his savings potential.

They Begin Earning Large Salaries

When a person in their 30s or 40s starts earning bigger dollars, they often save more, spend more or both. Their tax returns likely become more complicated, too. It becomes increasingly difficult to determine how much money to save and where to save, especially if the funds are tied up in different forms of company equity and deferred benefits. There can be a lot of missed opportunities to save tax-efficiently with bigger dollars, such as knowing when to exercise certain benefits and how best to prioritize retirement savings accounts.

A more detailed plan is also needed to avoid “lifestyle creep.” As a person or couple earns more money, they often spend more. Before they know it, they have become accustomed to making purchases at a rate or magnitude that cannot be sustained in retirement.

Many years ago, one of our clients introduced us to their daughter, because she had just been made partner at her law firm. This was the perfect time to start planning since her income rose substantially while her cash flow and tax status became more complex virtually overnight. Over several years, she has made the most of her financial opportunities by prioritizing and automating her savings plan and has avoided the temptation of lifestyle creep.

When a Couple Starts or Grows Their Family

Once a couple have a new baby or add more children to their growing family, their financial picture almost always gets more complicated. Income may go down temporarily, or they may move from two incomes to one. Expenses, on the other hand, almost always go up as they need to pay or save for childcare and education, and there is one more mouth to feed and body to clothe.

Here’s a good example. One couple, both with thriving careers in sales earning a combined income of roughly $250,000 annually, decided they wanted to start a family soon. They wanted to make sure their family was protected financially, and they were doing everything they could to save for the costs of having a child. We helped make sure that they had their financial plan in order, including building in the expected costs of children and education, advising on appropriate insurance and proactively ensuring estate documents were in place.

Helping Prepare for an Inheritance

Through the years we have seen many adult children inherit money and in almost every case, and despite what one might initially think, we find inheriting money does not cure financial problems. Sure, additional resources can help make life easier and relieve pressure for a fleeting moment. But, just like lottery winners who sometimes squander their financial windfall in a short number of years without good financial footing and habits, an inheritance may not solve money problems for long.

By helping an adult child develop a financial plan before any inheritance is received, they will be able to form good habits and have a healthy relationship with money. There can also be advantages to going ahead and giving some of the money now to adult children they would otherwise inherit. Currently you can give up to $15,000 per person without filing a gift tax return, and if you are married you can gift up to $30,000 to each individual as a couple.

We encourage parents to absolutely look after themselves first, but if there are surplus assets versus what will be needed to sustain their desired lifestyle for the rest of their lives, this can present an opportunity. Parents can have the joy of actually seeing their adult children benefit from their generosity now, and they can also witness how their adult children utilize a smaller amount of money before they are someday presented with a larger amount of money.

If you are planning to leave a large sum of money to your adult children, make certain it is the rocket fuel they need to help them go further faster instead of adding gasoline to a financial fire that is out of control.

We understand that working with a financial adviser isn’t for everyone. And for those who begin considering this option, it’s critical to do your research about any adviser and their firm, as well as how they are paid. But for older Americans with adult children in their 30s and 40s, helping your children understand the benefits that can be derived from a long-term financial plan is important, too. It may be one of the most impactful legacies you can leave them.