Preparing your children to protect wealth for future generations
The unprecedented global wealth transfer that will be taking place over the next decade underscores the importance of multi-generational wealth planning. It’s estimated that $1 trillion will move from Canadian baby boomers to their heirs, mostly millennials.* The earlier you talk with your family members about your plans for your wealth, the better prepared they can be when they ultimately receive it. There are a number of ways to help future generations protect and manage your wealth.
Open the lines of communication.
One of the best ways to move past any feelings of uneasiness when talking about money is to have open and transparent discussions. It sounds simple, but having conversations about money builds trust between family members and lets them know what to expect when receiving an inheritance. You’re passing on more than just your wealth; you are also passing on institutional knowledge and preparing the next generation to learn about, participate in and take on the responsibility of managing wealth.
Often, the best way to start the conversation is to discuss and demonstrate responsible financial behaviour in your personal and business life, and explain the reasons behind your financial decisions. As your children get older, they can start participating in decisions that can affect the family’s wealth, such as how they spend or invest their allowance, and even help to choose organizations that will receive family charitable donations.
Older children can be brought into discussions when creating a family plan that includes long-term goals, such as education, retirement, philanthropy and legacy planning. Consider designating responsibilities so that everyone will feel involved in the plan and participate in it to guarantee its success.
Wealth planners are experienced in speaking with multiple generations about managing wealth and making informed financial decisions. Involving a wealth planner when engaging your family members can help create a more open communication channel and a positive environment for long-term success.
Set the foundation for financial education.
Introducing financial knowledge and practical ways to teach financial management to children at an early age benefits them as they get older. One option is to have regular family meetings to discuss your family’s financial situation when reviewing and setting new financial goals. This should be age-appropriate for your children, but should always foster open communication and even some collective decision-making on smaller, lower-risk issues.
Encourage hands-on experience by teaching your children how to budget, save and even invest. Showing them how you are investing for their education through an RESP, for example, encourages curiosity, research and decision-making skills that will help them as adults.
Tap your resources for classes and seminars on investing, philanthropy, taxes and entrepreneurship. Within your network, you may be able to find mentors who can help educate your children on an ongoing basis. Pair your children with trusted family members who can guide them through complex financial concepts and decisions, and act as a resource if they have any questions.
Make it fun. You don’t want to burden your children with the stress of having to manage money and worries that they will be unable to enjoy what you’ve left them. Empower them to have the knowledge to ask questions, understand how your wealth is earned and protected, and learn how they can support it to make it grow.
Have the right team in place.
While you can set the foundation for financial education yourself as part of transferring wealth and knowledge, you may not have the time. A time could come when your kids might want to hear from other trusted professionals. They can remove the emotions inherent in conversations revolving around family and money.
Your wealth team can help with that. They can help ensure your wealth is properly managed, maximizing tax efficiencies and protecting your assets for the next generation. They can also mediate between family members and make suggestions that work best for various family members.
Plus, they have other resources, such as accountants, tax and estate planners, lawyers and other professionals who can provide expert advice and guidance. You can arrange family meetings at which you and your children can ask questions.
Be transparent with estate planning.
As you set up your estate plan, keep your family members in the loop as to what you’re doing and why you’re doing it. This helps your family understand how the family wealth is managed and how they’ll benefit. For example, if you have a business, you may decide to leave it to one child because they’ve expressed interest in it and have been working in it for years. Another child may not be interested in the business, but may want to be involved in the future. Depending on the value of the business, you may want to ensure an equal inheritance to each of your children. An option might be to make them beneficiaries, so they inherit an equitable amount.
Having open, ongoing, and transparent conversations about money can help your family members understand and respect your legacy plan. Setting a solid foundation early on, and getting the right resources in place, can better prepare future generations to properly protect and manage your wealth.
*“The Jackpot Generation,” Macleans, https://macleans.ca/society/the-jackpot-generation/
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