Helping the kids inherit

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 Toronto-based 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 net-worth 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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