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This article, written by Kelsey Rolfe, was originally published by The Globe and Mail on May 30, 2023, and features insights from Aaron Hector, B.COMM., CFP, R.F.P., TEP, Private Wealth Advisor.
Aaron Hector recently hosted a family meeting for his clients, a couple in the late stages of their life, and their adult children to review the clients’ wills, powers of attorney and personal directive documents for health decision-making.
At the end of the meeting, the clients’ children emerged with a better understanding of their parents’ final wishes. Mr. Hector, a private wealth advisor at CWB Wealth Management in Calgary, also talked his clients through the value of changing their powers of attorney from each other to their children ahead of time, as opposed to at a moment in the future when it might be more cumbersome or stressful.
“I said, ‘Everyone around this table is of sound mind today, but the timeline on that is getting shorter. Is there value here in just taking control of that transition and doing it a bit earlier than you need to, but in a way that’s much more graceful?’” Mr. Hector recalled.
Communicating estate plans – from future inheritances to executor and power of attorney appointments and other end-of-life wishes – can be delicate and difficult for clients, whether it’s because of family tensions or an understandable discomfort with death. But, advisors say there’s significant value in helping clients communicate their wishes to their children or other inheritors.
Just a quarter (26 per cent) of future bequestors feel they’ve provided enough information for their heirs to feel “very well-informed” about the bequestor’s wealth and state of affairs, and 41 per cent said their heirs would be “somewhat informed,” according to a recent survey in the U.S. by Cerulli Associates.
Meanwhile, about $1-trillion in personal wealth was expected to transfer from one generation to the next in Canada between 2016 and 2026, according to the Investor Economics Household Balance Sheet Report in 2017.
“It’s really incumbent on the advisor to get [clients] to move,” says Darren Coleman, senior portfolio manager, private client group, with Coleman Wealth at Raymond James Ltd. in Toronto.
“I really do feel this is an area where it’s beneficial for the advisor to lead positively with clients.”
While helping clients give their inheritors a fuller understanding of what they’ll receive is an important part of the puzzle, Patti Shannon, principal and portfolio manager, private clients and foundations at Leith Wheeler Investment Counsel Ltd. in Calgary, says there’s more to preparing children for an inheritance.
How to prevent sudden wealth syndrome
Ms. Shannon encourages clients to educate their children about money from childhood to adulthood. Giving them a grounding in how to save, invest and spend money through accounts like a registered education savings plan, tax-free savings account, and in some cases an informal trust, prepares them to be good stewards of their inheritance when the time comes, she says.It can also prevent against sudden wealth syndrome – the overwhelming pressure and anxiety that can come with receiving an unexpected fortune – or from a loss of motivation to work after receiving a great deal of money, she says.
When it comes to conversations specifically around inheritance, Mr. Hector says advisors can play several roles. Some clients may want their children to sit in on a regular review meeting to get the full state of play, while others might need a buffer or mediator during a difficult conversation. Advisors can also chair more collaborative family meetings, he adds. However, they should ask in advance what’s on the table for discussion to avoid disclosing information to inheritors that clients aren’t prepared to address.
Mr. Coleman also notes that beyond just helping clients have the conversation, advisors can ensure their wishes can be executed in the most tax- and administratively-effective way possible. He often sees Canadian parents who want a child living in the U.S. to be their executor, which can expose their estate to U.S. taxation.
Creating summaries, checklists and informing executors
As part of clients’ annual reviews, Mr. Hector pulls together a comprehensive summary of their financial information – including net worth, investment statements and notices of assessment. That also includes all the contact points for any professional relationships they have such as accountants and the companies their home, auto and life insurance are with.He says he encourages clients to at least make their inheritors aware of the existence of that document.
“[Kids] should know that if something happens to their parents, they can call me and we can be in a position to be very helpful,” he says.
“You can be that bridge almost where if it’s not the right time to share the information that’s okay, but [inheritors] should know there is a support system in place.”
He also encourages clients to write their memorandum of wishes, a non-legally binding document that details who should receive items of personal significance and that can include pearls of wisdom.
Mr. Coleman tells clients to start with their chosen executor to ensure that person knows what they’ll be asked to do, understands the client’s wishes and knows how to access the paperwork they’ll need. That’s particularly crucial given the executor role is often handed to a trusted family member or friend, who will also be experiencing a loss.
“The problem when you’re family or a close friend is your job as executor is the exact opposite to what you feel your role is as someone who is grieving,” says Mr. Coleman, who served as the executor for his father’s will.
“At a time, you most want to hang onto memories of that person, and your thoughts are about your loss. But your job is to remove all evidence of that person from the planet administratively.”
Mr. Coleman says he came up with the concept of a “fire drill” that he goes through with clients for this purpose – getting them to pull together a checklist of everything from more traditional estate documents like their will, business documents and retirement fund information to things they wouldn’t think of like where to find their social media and e-mail passwords and where the key to the safety deposit box is stored.
“I made a joke that I wish I had 10 more minutes with Dad, and when somebody said, ‘Oh, why, to say goodbye?’ I said, ‘No, to ask him what the heck is this key for?’” Mr. Coleman jokes.
“The only thing that speaks from the grave is your will and documentation, so make it as easy as possible.”
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional. No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability or its contents or for any consequences arising from its use.