Help­ing the kids in­herit

Many af­flu­ent fam­i­lies worry that a large in­her­i­tance will rob their chil­dren of mo­ti­va­tion. There also are con­cerns about how they will han­dle the money. Here’s how you can help

Investment Executive - - BYB: RETIREMENT - BY FIONA COL­LIE

in some cir­cum­stances, par­ents may be con­cerned that a planned in­her­i­tance could prove to be more a bur­den than a bless­ing to their chil­dren.

“Ob­vi­ously, af­flu­ence can give you a lot of op­tions and choices, but it can, un­for­tu­nately, ruin some peo­ple’s lives if the next gen­er­a­tion thinks, ‘Well, what’s the point?’” says An­drew Guil­foyle, part­ner with Toronto-based Guil­foyle Fi­nan­cial Inc. “Par­ents have read about that; par­ents have seen that with peo­ple in so­ci­ety. And so, they’re re­ally wor­ried about it.”

This topic is not an easy one for par­ents. You can help your clients be­gin con­ver­sa­tions about fi­nances with their chil­dren. And ex­pect to have many of th­ese con­ver­sa­tions. A 2015 re­port by Ac­cen­ture LLP placed the up­com­ing wealth trans­fer in North Amer­ica over the next few decades at $30 tril­lion in fi­nan­cial and non-fi­nan­cial assets. In Canada, more than $400 bil­lion is ex­pected to be passed on to ben­e­fi­cia­ries within a gen­er­a­tion, ac­cord­ing to the Wealth Trans­fer Re­port from Toron­to­based Royal Bank of Canada (RBC), pub­lished ear­lier this year.

One way you can help your clients in pre­par­ing their chil­dren to in­herit a siz­able sum is by be­ing a re­source for fi­nan­cial knowl­edge. The RBC re­port found that 35% of Cana­di­ans re­lied on fi­nan­cial ad­vi­sors and private bankers to ed­u­cate chil­dren on fi­nan­cial top­ics.

One way you can help with this type of knowl­edge could be to be­gin a con­ver­sa­tion with a client about how the client would like to in­tro­duce a child to fi­nances, such as the pos­si­bil­ity of an al­lowance. You also can pro­vide use­ful ar­ti­cles or videos to your clients to share with their chil­dren.

Those re­sources may come from third par­ties or from your firm. For ex­am­ple, be­gin­ning in Jan­uary 2018, Toronto-based RBC Do­min­ion Se­cu­ri­ties Inc. (DS) will of­fer an in-house fi­nan­cial lit­er­acy pro­gram.

“We be­lieve strongly that [pro­mot­ing fi­nan­cial lit­er­acy] is a big part of the ad­vi­sor’s job in sup­port­ing the fam­ily and putting those pro­cesses in place,” says Tony Maior­ino, vice pres­i­dent, wealth-man­age­ment ser­vices, in RBC’s wealth-man­age­ment di­vi­sion.

Through the new pro­gram, DS ad­vi­sors will have ac­cess to re­sources to help im­prove the fi­nan­cial lit­er­acy of clients and their chil­dren. Ar­eas of fo­cus in­clude ad­vanced plan­ning top­ics, such as in­for­ma­tion about wills and es­tates; in­vest­ing, such as what an as­set class is; earn­ings and sav­ing, such as how to bud­get money; and wealth plan­ning ba­sics, in­clud­ing fi­nan­cial doc­u­men­ta­tion.

Guil­foyle, for his part, al­ready has such con­ver­sa­tions with his clients’ chil­dren, gen­er­ally about once a year, be­gin­ning at age 18. De­pend­ing on the child, the con­ver­sa­tion may cover ba­sic top­ics, such as what a TFSA is, or more ad­vanced top­ics, such as in­vest­ing glob­ally vs do­mes­ti­cally.

“[My of­fice] re­ally is a safe spot that I of­fer [clients],” Guil­foyle says. “A lot of times, [fi­nances] can be an un­com­fort­able con­ver­sa­tion, with kids think­ing, ‘Boy, should I know this?’ or even ‘What are the ques­tions that I should ask?’ And so, we go through them.”

Guil­foyle cred­its the suc­cess of th­ese con­ver­sa­tions in part to the fact that he’s of­ten younger than the child’s par­ents. In­deed, ad­vi­sors work­ing with high net­worth clients may want to con­sider hir­ing younger team mem­bers who can con­nect with the next gen­er­a­tion bet­ter.

You also can host a fam­ily meet­ing, which can help to state the fam­ily’s val­ues ex­plic­itly, the par­ents’ hope for how the in­her­i­tance will be used and ex­actly how the es­tate will be di­vided — and why. At this meet­ing, par­ents can dis­cuss how they will sup­port their chil­dren dur­ing their life­time, such as help­ing to buy a house or start a busi­ness.

“Hav­ing that fam­ily meet­ing is im­por­tant, so [clients] can dis­close that in­for­ma­tion to their chil­dren,” says Chris But­tigieg, direc­tor of Bank of Mon­treal’s Wealth In­sti­tute in Toronto.

Be­sides be­gin­ning con­ver­sa­tions about a client’s es­tate and the client’s hopes for it, some clients may want to use more for­mal struc­tures for pass­ing on their wealth. For ex­am­ple, you could talk to your clients about set­ting up an in­cen­tive trust that would re­lease money to a child once cer­tain cri­te­ria are met, such as com­plet­ing an aca­demic de­gree or meet­ing a ba­sic level of in­come.

Par­ents also may choose to in­stil val­ues and a sense of fi­nances in their chil­dren through char­i­ta­ble ini­tia­tives.

“A lot of high net-worth fam­i­lies are very char­i­ta­ble,” says But­tigieg, “and they want to pass on that value to their kids.”

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