Feb 1, 2018
Pattie Lovett-Reid: How to have the ‘inheritance conversation’
As boomers age, the largest intergenerational transfer of wealth in Canadian history will be taking place.
It will amount to approximately $1 trillion of personal wealth being transferred from 2016 to 2026, according to Strategic Insight. And 70 per cent of that wealth transfer will be in the form of financial assets.
An equally startling statistic is that 58 per cent have not discussed instructions for their estate with their heirs and 12 per cent never plan on having the “inheritance conversation,” according to a recent IPC Private Wealth survey.
It is not surprising that the survey found 32 per cent are worried how their heirs will handle the their inheritance and 36 per cent say their children don’t have the financial literacy to manage a potential windfall. To make matters worse, 28 per cent don’t trust their children’s spouses to manage their wealth.
Estate planning is difficult but it’s an important component of financial planning. You can’t take your money with you, so if you care about the financial legacy you leave behind, it is up to you to do something about it.
I reached out to Brad Smith, senior wealth advisor at IPC Securities, who offered tips on how to jumpstart the inheritance conversation:
-“First, both parents and adult children need to have the proper view of money and wealth before discussing wealth transfer. All too often we rush into the inheritance conversation. Talk to the next generation about money and get a good understanding of how they view money. It will most likely be different than yours which may not be a bad thing – it's just different.”
-“Second, the next generation may not understand fully what it took to create the wealth. Have conversations about what it was like growing up in your generation and how you viewed money and wealth as a kid. Then let your children share how they viewed money growing up.”
-“Third, start a conversation about the possibilities for the future. Don’t jump right into ‘what should happen’ with the inheritance, but explore the possibilities what the inheritance could do for your children and generations beyond. Let your children see the whole picture of your financial life and how they fit into the legacy you are desiring to leave behind. Don’t think about the next generation alone, but two, three and even four generations when discussing wealth transfer with your family.”
He also had this to say on blended families:
“Blended families bring additional challenges because the fear is often that one side of the family could be left out. This is where mom and dad need to be unified in their decision. Often one spouse will abdicate to the other and 75 per cent of the time according to the IPC survey it is men, but in blended families both spouses need to be unified. This takes more discussion between spouses before the next generation is introduced to the process. Once mom and dad are unified on how the inheritance will be utilized, then the conversations can begin with the next generation.”
Lastly, the next generation needs to understand the wealth is not theirs until it is given to them. The concept of entitlement is real and dangerous. When mom and dad are united on how the wealth will be transferred, they are better prepared to deal with the attitude of entitlement when it comes to dealing with the next generation – whether a blended family or not.
