Preparing your Heirs for Wealth

If you think your heirs are not quite old enough or prepared enough to discuss the wealth they will inherit on your death, you’re not alone. Unfortunately though, this way of thinking can leave your beneficiaries in a decision-making vacuum: an unnecessary predicament which can be avoided by facing your own mortality and making a plan.

If you have a will in place, great. A will, however, is only a fundamental first step, not a comprehensive plan, point out authors of the 2017 Wealth Transfer Report from RBC Wealth Management.

“One generation’s success at building wealth does not ensure the next generation’s ability to manage wealth responsibly, or provide effective stewardship for the future,” they write. “Knowing the value (alone) does little to prepare inheritors for managing the considerable responsibilities of wealth.” Overall, the report’s authors say the number of inheritors who’ve been prepared hovers at just one in three.

Worse, they say despite best intentions, individuals are repeating history in a negative way.

“Overall, our respondents reveal a marked level of discomfort when confronting the theme of wealth transfer directly: Only 40% say they are comfortable sharing details with their beneficiaries. As such, they risk subjecting their own heirs to the same lack of clarity and understanding they experienced during their own inheritance.”

Two thirds say their own wealth transfer plans aren’t fully developed – a critical barrier to having this discussion in the first place.

While the report focuses on wealthier beneficiaries in society, the lessons remain true for most: There is planning, communication, and a fair bit of education your heirs need in order to make the best decisions about your wealth when the time comes.

1. Recognize that action today can help you create a better future forever.

First, it’s important to acknowledge that creating an estate plan means contemplating your own mortality – an inescapable element of the process. It can also involve some awkward conversations, particularly if you’re not in the habit of talking about money with family and loved ones.

Without planning, however, the outcome you leave may not be the one you would choose.

2. Get help to build your plan, then share it with those who matter.

Estate planning typically isn’t a “do-it-yourself” project. Instead, you’ll probably need to rely on a network of professional advisors who can bring their expertise to different parts of your plan. Your network might include a lawyer and a financial advisor or other representative from your financial institution.

Once you have your plan in place, it’s time to ensure that the people who are impacted by it are aware of your wishes. In the survey, only 35 per cent of those who had inherited money in the past said their benefactors had prepared them in advance.

Members of your professional network can also help you explain your plan to beneficiaries and help those who inherit your assets to understand your preferences and the decisions you’ve made.

3. Encourage education early.

Most of the people surveyed are not confident that the wealth they pass on will be preserved by the people who inherit it. Nearly 60 per cent of Canadian parents said they aren’t sure that their children will preserve or grow their inheritance, though almost 70 per cent said their children were first in line to inherit.

Here’s where a little financial education can go a long way: If you’re concerned about the money management skills of those to whom you’ll leave assets, now is the time to start putting structures in place to build financial literacy. Having a plan is itself an important first step. The survey showed that 58 per cent of those with a plan are confident the next generation will sustain their wealth, compared to just 33 per cent of those who haven’t taken time to prepare.

Finally, although creating an estate plan sounds as though it will only have an impact after you’re gone, the confidence (your own confidence, and the confidence you instill in others with a little bit of preparation) is one of the benefits you can enjoy in life. In sum, these three steps – developing a plan, communicating it to those who matter, and taking action to ensure your wishes will be sustained over generations – can lead to confidence now about the future you’re creating.

Let’s get together to discuss how you can create your wealth transfer plans, and get help in communicating those plans to the people who matter the most.

As always, please feel free to share this article with anyone you think would find it of value.