I remember when I first started in this business (almost 25 years ago now), bringing up the subject of estate planning was like pulling teeth.
People simply didn't want to talk about it. As a result, there was a general lack of knowledge about what estate planning entails. Most people had a very "ad-hoc" approach.
My own observation: This reluctance has diminished somewhat. While I still see people with "holes" in their estate plan, and occasionally, people who lack even a basic will, things are a lot better than before. This is particularly true among the high-net-worth population, where the awareness of estate planning issues has really grown.
All this is good news. But it masks another challenge: the tendency to construct estate plans that are too "inward-looking" in nature.
What do I mean by that? Most professionally written estate plans do a good job dealing with the wishes of the person giving assets away. Where they often falter, however, is in dealing with the needs of the heirs and other stakeholders. In general, such plans are indicative of owners who think an estate plan is more about passing on assets, rather than passing on knowledge, wisdom and expertise.
I think this is a missed opportunity. Contrary to popular belief, inheriting money isn't easy. Many times, inheritance comes with guilt, unrealistic expectations and other "emotional baggage." Sometimes heirs have no idea how to manage their new-found wealth. If the inheritance is large enough, it could lead to drastic life changes that are "forced" on heirs without consultation, consent, or the skill-set to manage it wisely.
Some people might say "big deal." After all, there are a lot of people who don't receive any inheritance. I'd rather feel a little guilt than have no inheritance. I think this attitude completely misses the point.
Here's the thing: the goal of an inheritance is to make life easier, not more difficult. And none of us want to leave our heirs feeling uncomfortable or overwhelmed. And with a little time and effort, we don't have to. With that in mind, here are some tips that can prepare our heirs for their inheritance – a combination of practical financial advice and relationship-building "soft skills."
It's become a bit of a cliché to suggest communication as a solution to financial problems. But when it comes to estate planning, it's really true. A lot of conflict, bad feelings and legal hassles can be avoided if heirs know ahead of time what your estate intentions are.
With large estates (or estates with many heirs), this communication is especially important, and should preferably be structured more formally as a family meeting or through a mentorship plan. Blended families (i.e., with children from different marriages) are another example where communication really counts. But no matter what the size, a family can benefit from "round-table" discussions and open, honest dialogue.
Write it down
Obviously, your will is the foundation of your estate plan. But its purpose is to explain what you want to do with your assets – not necessarily why. I recommend people write a personal statement of wishes to accompany their will, a document that clearly and cogently explains why you've structured your estate the way you have. I have also seen videos used to supplement "Letter of Wishes" and the actual legal will. Heirs may not agree with your decisions, but at least they won't have to wonder why you made them. Review your will every two years, or at major financial or health events.
Teach them a positive attitude
Preparing heirs starts with how you teach them about wealth. Be cautious with handouts and "economic subsidies." Foster a culture of achievement and independence. Encourage and celebrate successes. By the time they inherit, your heirs will have a mature, healthy, attitude toward money that will serve them well.
Deal with succession early
Do you have a family business? If so, think about succession as early as you can. Don't assume your heirs will want to take on the business – ask them directly. Establish a clear plan of what happens when, and what happens to family members who may be owners without being managers. The earlier you plan, the less chance of hassles and conflicts. This is an ongoing process.
Think about "delayed" inheritance
Sometimes the best thing you can do to prepare heirs is to delay their inheritance. Trusts are the go-to tool for such strategies; they can be a great way to allow heirs to grow up before they inherit. By establishing inheritance pay-outs based on important life milestones (graduating from university; buying a first house; etc.) you can reduce the chance of young heirs running afoul of financial temptations and bad decisions.
Educate; train; mentor
For many heirs, inheritance is like stepping into a whole new world. You can do a lot to help by providing leadership and financial guidance. In many ways, this legacy is far more important than money.
Introduce heirs to your team of professional advisors. Identify mentors if you can; this is particularly important with business assets. Give heirs the opportunity to sit in on financial discussions. Giving them a financial context for their inheritance will make the transition to wealth easier. I find today that one of the most valuable services that my group provides to patriarchs and wealth creators is that of a financial and career mentor to their adult children.
One final note
It might sound trite but no estate plan in the world can make up for neglect, distrust and lost time. So if you're concerned about how your heirs will handle their inheritance, invest in your family. Spend the time with your children (and grandchildren). Take an interest in what they're doing. Talk to them. Share your life and business decisions and stories. Really, that's the best estate plan you could ever have.
Thane Stenner is founder of Stenner Investment Partners within Richardson GMP Ltd., as well as Portfolio Manager and Director, Wealth Management. Thane is also Managing Director for TIGER 21 Canada (www.tiger21.com/canada). He is the bestselling author of ´True Wealth: an expert guide for high-net-worth individuals (and their advisors)'. (www.stennerinvestmentpartners.com) (Thane.Stenner@RichardsonGMP.com). The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates.Richardson GMP Limited, Member Canadian Investor Protection Fund.