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Canada is in the midst of the country’s largest ever intergenerational wealth transfer. It will see about $1-trillion in personal wealth transferred from one generation to the next between 2016 and 2026, according to research firm Strategic Insight.
That requires in-depth financial planning discussions on the part of those transferring and receiving the money. Yet these conversations can be difficult, as money has historically been a taboo subject in many families. That’s why it’s valuable to involve a third-party expert who understands both family dynamics and the technical aspects of wealth transfer, says Paul Wheaton, an investment counsellor at Mawer Investment Management.
“We try to focus on discussions around ways that you can prepare your kids or grandkids for this wealth, and also how do you talk to them about being good stewards of the inheritance.”
Traditionally, he says financial professionals focus on the more technical elements of inheritances, like investments, taxes and estate planning. That’s essential, yet there is often a gap in advice around what this wealth transfer means for the family.
Mr. Wheaton has a Family Enterprise Advisor certification and has worked extensively with families on wealth transfer. He says it’s important to talk about how wealth is viewed in the family. Where did it come from? What’s the family story around it? How do the members who are currently in possession of the majority of the wealth see this story continuing?
Addressing such questions can lead to productive discussions about expectations or concerns attached to wealth transfers, and whether those differ through the generations.
These discussions transcend mere financial figures. Mr. Wheaton once worked with a family where the parents were ready to step back from daily operations in their family business, yet they hesitated, uncertain if their children were prepared or even interested in taking over.
Meanwhile, the children conveyed a strong desire to be more involved in the business, believing they had valuable skills to offer. However, they felt stifled and lacked the opportunity to voice their ideas. “The work I’m doing with them is providing a forum where they can talk about this together,” he says.
It’s also crucial to cultivate financial literacy well before any wealth is transferred, ensuring all involved understand the implications of wealth management.
“Families are often worried that if their kids know about their financial wealth, they’ll lose their incentive to work on their own and turn into trust fund babies,” says Mr. Wheaton. “Instead of playing into this story and reinforcing it by suggesting a tightly controlled family trust, the advisor could focus on the positive.”
Consider the efforts the senior family members have made to instill strong financial values in the younger generation. What lessons in fiscal responsibility have they imparted? Similarly, how have the younger family members demonstrated their ability to make wise financial choices? “That’s a more interesting conversation to have with families,” he says.
Money can be hard to talk about. Advisors can employ some tactics to get these conversations going and make them seem less daunting.
“An interesting way to do it is to imagine yourself sitting in a room 50 years from now with your family. What do you want to see happening there, and what do you want them to be talking about? It can start the conversation from a more sentimental and human place, and makes you think past your own lifetime,” says Mr. Wheaton.
Wealth transfers aren’t a one-time discussion. Having these conversations more often and allowing them to come up naturally – like when a grandchild starts to talk about what they want to be when they grow up – can make these chats less awkward. And the more involved the family feels in these discussions, the more likely they are to come up.
“A lot of people would say, ‘I just want everyone to be happy’, and there’s nothing wrong with that. But why not use that as a springboard to talk about the money it would take to make that happen,” says Mr. Wheaton.
Talks of dreams and goals can also lead to conversations about what is possible right now and the act of “giving while living”. Providing at least part of an inheritance while the giver is still alive is becoming a popular alternative to estate giving. Older generations want to help financially with the purchase of a home or paying off student loans, and get to see the impact of the gift.
Mr. Wheaton says managing wealth transfer discussions calls for experience leading family meetings, excellent listening skills, empathy and an understanding of family dynamics.
“It’s about creating the space where these conversations can happen and everyone can discuss things as equals. While that’s not always an easy skill set to come by, it’s invaluable in these discussions.”
Advertising feature produced by Globe Content Studio with Mawer Investment Management. The Globe’s editorial department was not involved.