Massive financial change is poised to occur in the coming years as baby boomers pass on their assets to millennials and Gen Zers. But many parents aren’t preparing their adult children to manage these riches.
According to the Chartered Professional Accountants of Canada (CPA Canada), this will be the largest intergenerational wealth transfer in the country’s history, with young Canadians expected to receive a total of $1 trillion in total over the next few years.
However, talking about money is still taboo for many families, says Thuy Lam, a certified financial planner at Toronto-based Objective Financial Partners.
“The reality is that the majority of parents do not sit down with their children [pour discuter]. Not even a third of parents will sit down with their children,” says Mme Lam.
Even after working in the financial sector for more than 20 years, she says she’s still surprised when a family has had an open discussion with their children, because it’s rare. However, having this discussion is always something she encourages.
The unfortunate irony of this silence is that parents fear more than anything that their children lack financial literacy; they fear that their children will not know how to manage their money, says Mme Lam.
But it is difficult to learn about a taboo subject, especially if the parents have specific wishes regarding their assets. Lack of communication can create family conflict around inheritances, emphasizes the financial planner.
The issue of inheritance is particularly sensitive because it involves death, says the director of the client advisory group at Edward Jones Canada, Tracey McLennan.
“We don’t like to talk about mortality either,” she said. So now we associate money and mortality. »
Spouses, a concern
However, parents talk to their counselors about it, and it turns out they have a lot to say.
The primary concern of this asset-rich generation is their children’s financial literacy. The second concern concerns the spouses of their children, explains Mme Lam.
Even if the marriages between their children and their spouses are going well at the time, it is sometimes a concern. They want to be able to protect any inheritance from a possible breakup.
Thuy Lam, certified financial planner at Objective Financial Partners
Same observation on the side of Mme McLennan. Many say: “We love our daughters-in-law and sons-in-law, but what will happen if the relationship does not last?” »
“I think we’re also hearing parents worry that they don’t want to give away their wealth too soon, or in a way that would affect their children’s lives or relationships,” says Ms.me McLennan.
Avoid wasting your inheritance
The older generation worked hard to earn and save their money, says Mme McLennan. The latter’s clients tell him that they are worried about the waste of their inheritance. Her clients want their legacy to have meaning.
“They want to make sure they have a big impact on the next generation, and that it doesn’t go to waste,” says Ms.me McLennan. Or, if there are enough funds, that they will actually be available for several generations. »
Sometimes parents’ vision of wealth can be very specific, she confides: paying for their grandchildren’s education or using it as extra money for vacations their children couldn’t otherwise afford.
They may also want security for heirs who are self-employed or work for the family business, or who have a disability or addiction.
Adult children can sometimes initiate the conversation if their parents haven’t. It happens that Mme Lam finds himself teaching the younger generation how to open dialogue. You need to start by asking questions about the role of executor.
This is very authentic, because estate planning is not only about the distribution of assets, but also the role of executor. Who will assume certain roles in settling the estate?
Thuy Lam, certified financial planner at Objective Financial Partners
It can take a year between the death of a parent and the settlement date, she adds. “Imagine trying to get to grips with this role and learning how to manage a large amount of money in a year – that’s not a very long time. »
Be accompanied
To start the conversation, Mme McLennan recommends seeking help for what can be a stressful time for parents. Working with counselors, she adds, can help bridge the gap between family members by introducing a mediator.
“It’s about making sure we pass on instructions to them regarding documents, wills, powers of attorney and making sure they understand their parents’ wishes. »
Adult children can begin their own financial education by reading the news, listening to popular podcasts and seeking expert advice, says Mme Lam.
Long before an estate falls into their hands, they can gain confidence when it comes to investing, debt management and overall financial health.
This confidence, according to Mme Lam, can help alleviate some of the anxiety felt by heirs who suddenly find themselves having to manage large sums of money.
Mme McLennan agrees. Adult children recognize responsibility for the gift they were given, which can impact the rest of the family, a business, and their community.
“There is a bit of a fear: ‘what if I make the wrong decision? What if I invest and the markets go down?” “, said Mme McLennan.
“I think there’s a lot of anxiety sometimes about that management role. Most children want to fulfill their parents’ wishes. And they want to make sure they do it right,” she says.