(Runtime: 6 min, 45 sec; size: 76.06 MB)
Susan Wood, I’m the director of wealth strategies with CIBC Private Wealth.
Parents with wealth often struggle with how much to disclose and when to disclose, and when they should start talking about plans for their estates and the future transition of wealth. Let’s look at some possible actions to take, maybe at different ages and different stages of life.
If we think about younger kids, they actually know quite a bit already, even by the age of nine or 10. So, although I wouldn’t talk about the specifics of wealth, parents should start to plant the seeds and to manage the children’s expectations around wealth. It’s a good time in these early years to start talking about money, about family values around money and to start building financial education and fluency.
A neat place to start is with allowances. Allowances ideally are delivered as a three-part allowance. I think of it as parents giving an allowance, but suggesting to the children that there’s a part of it that you spend, part of it that you save, and perhaps a part of it that you give away. Having those three different parts allows financial fluency to build. The part that you spend allows them education around budgeting and still needed to manage money and to learn to prioritize spending. The part that you save allows the family to start engaging in a discussion about investing, and the part that you give away allows you to engage in philanthropy, which can play an important role the more that we disclose information to the children about wealth.
When it comes to older kids, say in their teens, we can start to share more about managing their expectations for the family wealth that they may or may not receive. It’s okay for kids of this age that have some maturity and some financial fluency and a healthy relationship with wealth to understand that the family has some wealth.
Career building years. So the next phase, maybe just post school if you think about it in terms of ages, we owe it to our children to offer some transparency about our intentions for the family wealth as they get older. Again, because without it, they may be making some assumptions. However, we don’t need to provide them, the kids, with a lot of passive wealth transfer. In fact, I recommend that we don’t start giving a lot of wealth to children during their career building years so that they aren’t discouraged in any way from making their own way.
At the very least your named representative, so your executor to your will, should be made aware of your estate and where your estate documents are located, and at least in very broad brush terms, what your wishes are as outlined in those documents. However, beyond just your estate representative, once your children are adults, once they’re established, once they’re making their own estate plans, they do need to know of your plans for transition of wealth, too. I believe that full transparency is warranted at this point with very few exceptions. If there is wealth that will be transitioned to them, or if there isn’t, or perhaps wealth that is being transitioned directly to your grandchildren, their children, adult kids need to know that so that they can plan accordingly for their own estates and be as thoughtful as possible.
How can advisors help? There’s so much that advisors can do with their clients. Simply by engaging with your clients on this matter may be very helpful to them and it broadens the discussion from simply being about their investment portfolio to include a discussion about their children and their vision for the family wealth, and potentially opens the door to a relationship with their children if there isn’t one already, particularly if the advisor is willing to help build that financial fluency that we touched on with the children as they mature. If the clients already have firm views on how they plan to share information with their children, or maybe if they’ve already done so, it also is very helpful for the advisor to kind of talk about this with the clients so that the advisor can gage their conversation with the kids so that they share the same attitudes and the same values towards the wealth as the parents have reflected and so that the advisors know what level of information has already been shared with the children to date.
In addition to building financial fluency, the advisors can also help facilitate family discussions around philanthropy. If there’s a family foundation or a donor advice fund in place. Sharing with your clients and with their families what other wealthy families are doing is always of interest, strictly on a learning basis, but they always kind of want to hear what other strategies people are implementing.
When the client is interested in sharing more specifics, either about the wealth broadly or about the specifics of their estate plans, advisors are often integral by either offering to host that meeting or to attend that meeting. Having an outsider at those meetings can be helpful either to facilitate or possibly to manage the family dynamics. People tend to behave better when there isn’t just only family there. And also having the advisor there is super helpful because they can offer technical support, answer questions that may come up.
I say this, but I do think that it’s the client that should be the one to lead the conversation, to share the information, if they are comfortable, particularly around the distribution or the transition plan for the wealth to the children, so that the children hear this as it being their parents’ wishes. If on the other hand, the client prefers to have only family at that meeting, you as an advisor can still help the client prepare for that meeting with visual aids, helping them put a balance sheet together, maybe some projections, you can also offer up a suggested agenda, and even offer to do a run free of the presentation or discussion with your clients. I do feel an agenda always helps to be shared in advance so that the adult children understand the importance of the meeting and they can also experience some anxiety if they don’t actually know what the meeting is about.