Guided and open family discussions can facilitate smoother wealth transfers.GETTY IMAGES
Receiving an inheritance should be more than a transaction. After all, it’s not just about money. It’s about values and legacy.
Advisors can play a critical role in helping clients truly support the financial stability of future generations and ensure family cohesiveness. Yet, clients often shy away from the thorny decisions involving passing wealth from one generation to the next, says Cassandra Cross, a wealth advisor with Nicola Wealth Management Ltd. in Calgary.
“I’ve seen families avoid conversations about money until a triggering event forces them to,” she says. “There is typically a disconnect between transferring wealth and preparedness.”
Given that $1-trillion is expected to pass to the next generation in Canada in the coming years, according to a report from CPA (Chartered Professional Accountants) Canada, that disconnect appears more like a yawning gap.
Many clients erroneously believe that a will and an executor are sufficient to address potential issues. Although those components are important, they represent only part of estate planning. A larger matter is defining family beliefs and goals around wealth.
A recent RBC Royal Trust survey revealed that three in 10 Canadians with a will haven’t discussed their plans with their family. This lack of communication “can lead to a mismatch in what parents are thinking and their kids are thinking,” says Anthony Maiorino, head of RBC Family Office Services in Toronto.
In addition to offering value-added services around the technical facets of estate planning, such as implementing trusts or formal loan agreements, wealth advisors can stickhandle family discussions around expectations.
Establishing a family’s overarching vision is a big part of driving a wealth plan’s design, says Mr. Maiorino. He notes that some clients worry about whether their children share their vision. Intergenerational financial literacy is essential.
“If you want your kids to be philanthropic, you have to show them what that means to be philanthropic. If you want your kids to invest for the future, you have to talk about that with them,” Mr. Maiorino says.
Part of that education is insight into what’s coming. If the next generation is flying blindly into receiving significant wealth, that can result in less than ideal outcomes, says Nader Hamid, wealth advisor and portfolio manager with TWM Group at iA Private Wealth Inc. in Pointe-Claire, Que.
Sometimes, younger generations might also expect to inherit far more than their parents are planning to (or can) pass down. That’s especially true given changes in longevity. Mr. Hamid points to recent FP Canada Standards Council data showing that for a couple aged 60 today, there’s a 30 per cent chance of one spouse living past age 95.
“People are living much longer. So, your kids might be receiving a different amount at a date much longer than anticipated.”
He notes that giving while living is another pressing topic advisors can help guide. Rising costs for the purchase of a first home or post-secondary education have left many in younger generations feeling financially pinched. As a result, some aging parents may want to act now to assist.
“Providing living gifts to help out now leads to other considerations, like what assets to draw upon, and the most effective way to transfer assets,” Mr. Hamid says.
Any wealth transfer decision should be informed by frank discussions with adult children so that needs, goals and expectations are all clear.
“Regular family meetings really help open that box,” he says. Receiving an inheritance should be more than a transaction. After all, it’s not just about money. It’s about values and legacy.