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When Parents Are Doing Their Adult Kids’ Taxes, What’s the Bigger Picture?

Thought Leadership – 4/20/2018

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The Wall Street Journal recently highlighted an apparently common practice in American families: parents doing their kids’ taxes. Why is this notable? Well, in many cases, the children are adults in their 20s, 30s, 40s, and even 50s. So, why are parents doing their adult children’s taxes? Is it a good thing or a bad thing?

In our work with families, we have seen many situations like this. In our experience it’s not necessarily good OR bad. However, it can bring to light some critical needs of families trying to plan for successful transition of wealth from one generation to the next. In particular, the needs for good communication, preparation of the next generation, and clear decision-making processes.

Interestingly, in this article, children and parents had many different takes on why one generation was doing another’s taxes. Some parents wanted peace of mind that their children’s financial affairs were being properly taken care of. Some parents enjoyed the feeling that their kids still needed them for something. And the children? Some commented that their parents seemed to “like” doing it, but for the most part they were simply loathe to give up a practice that prevented them from having to engage in tax preparation or hire a professional.

In all these situations, money was a part of the relationship between parents and their kids long after the kids had grown up. The article showed that this relationship was sometimes complicated, and that there were emotions related to it, both for parents and kids, that they didn’t always share with each other.

For families of means, the business of family wealth can be complicated – kids’ and parents’ financial lives are intertwined not just during tax season but also in many other ways. Successful wealth transfer depends on effective communication within the family, and comprehensive preparation of each generation to make good decisions related to the family wealth.

At Matter, we work with families to clarify family mission and vision, and to help them learn more about how they communicate and listen. Then we help them set up a family meeting system where they can discuss these matters in a structured setting that feels accessible to everyone. This prevents misunderstandings and opens the floor for better communication, but also serves as a way to proactively discuss transition of responsibilities from one generation to the next.

In the end, parents (wealthy or not) doing their kids’ taxes isn’t necessarily a bad thing. But for the families we serve, we have seen that it is important for parents and children to get on the same page about why decisions (like who is doing the taxes) have been made. It is also critical to come up with a plan to transition responsibility to the next generation when the time is right – including preparing them for that responsibility.

Throughout decades of working with family office clients, we have seen that every family is unique. Decisions that are right for one family won’t always work for another. We believe that families who put energy and intention into this process have a high chance of success not only in preserving their financial capital, but, more importantly, their family relationships.

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