Smart Intergenerational Wealth Planning and Transfer Strategies for Your Family

How to create and communicate a plan that works for you and your family 

Discussing money matters can be a delicate subject, yet it is a conversation that is important for families to engage in, particularly with a view to sharing, using, or passing on family wealth to set up future generations for success. Here’s how to broach these topics, plus some creative strategies you can use when getting your own family affairs in order.

Let’s face it: discussing money within the family can sometimes be uncomfortable. Bringing up the topic means talking about very sensitive and personal topics – that can feel like prying to some, and opportunistic to others.

Setting those doubts aside, the benefits of making an intergenerational financial plan for you and your family can go a long way to setting up future generations for greater financial wellness. In turn, that can put major life and financial goals within reach – from education to home ownership and beyond.

Clear and honest communication about finances is critical, both for avoiding future conflict and helping the next generations flourish.

Defining intergenerational financial planning

If you’re having thoughts and discussions with your family about how to use the family’s financial assets to the benefit of future generations, you’re already on the path to what those of us in the financial world call intergenerational financial planning. In a nutshell, this is a financial planning strategy that cuts across the various generations of your family. Parents, children, grandparents – all of them are involved in the process and all of them have a role to play in achieving the family’s financial goals and optimizing your wealth.

Intergenerational financial planning isn’t just about wills and inheritance, but having a clear estate plan is a critical component. One thing you don’t want is to pass away without a will, or an out-of-date one, setting the stage for family conflict and even legal strife that could last for years – that’s certainly not a great legacy to leave behind.

Overall, intergenerational financial planning is about making a plan for your family’s financial future. This can include setting up educational funds for children and grandchildren, helping young adult children getting established with home ownership, making plans for the future care of older adults (parents and grandparents, for example), and collectively working together as a family to ensure that what you’ve built is protected for future use.

Every family has different dynamics and each family member will have their own goals and views – that can sometimes create conflicts of interest. Luckily, a few conversations with loved ones can avoid problems when the time comes to plan and share the bounty of your family’s wealth. Here are some tips you can use to foster communication about the process and make it easier for family members from each generation.

1. Make sure you have met with a financial advisor

A financial advisor can ensure your family has a well-structured and well-defined financial plan. They can even work with you to ensure you have an updated will and estate plan that line up with you wishes. Financial advisors can also co-ordinate with other professionals employed by your family – such as accountants and lawyers – to make sure everyone is working with the same goals in mind.

Something else most people rarely consider is that a financial advisor has access to resources and investments that most people don’t. As such, they may be able to give you creative solutions to tricky financial-planning issues. (We’ll examine two particularly interesting strategies further on.)

2. Schedule a family meeting

When its time to bring the family together for a conversation about money, make sure you set the date of discussion well ahead of time and communicate the intention to everyone involve so they have a chance to gather their thoughts. The last thing you want to do is catch everyone off guard by bringing up stock portfolios and final wishes when you’re at a family barbeque.

Odd as it may sound, family times such as Thanksgiving, Christmas or year-end holidays can be a good time to meet because they’re both times of year when most of your family may be together.

3. Use the occasion to strengthen family bonds

Despite the seriousness of the topic, there’s no reason why you can’t turn it into a bonding experience. If you have a regular family games night, for example, consider scheduling your financial-planning talk just beforehand. Then you can get the discussion out of the way and go on to have a pleasant evening. And after all that talk of real estate, banking, trusts, charities, and estate taxes, maybe a game of Monopoly is in order?

4. Don’t hold back

Difficult as it can be, this is the time to be direct about your feelings. If you’re concerned about something, put it on the table and encourage others to do the same. That way, you reduce the odds of hurt feelings or conflict when the time comes to making plans.

If it is absolutely necessary, family counselling is available to help with these types of discussions. There are numerous resources available for families on how to talk about money from a psychology perspective. It’s a difficult skill, and one that the whole family can get better at with practice. Your advisor can offer some suggestions.

Likewise, be open about your goals and encourage family members to be open about theirs. Whether there are thoughts of further education, buying a starter home or vacation property, or other big-picture financial matters, knowing what everyone hopes to achieve will help with making a plan to realize those goals.

Have a cherished family asset? Here’s how to pass it along fairly

Some family assets have value of a completely different kind – beyond the dollar amount, there’s a sense of nostalgia or pride connected to them. A family cottage is such an example. This type of asset combines emotion (in the form of cherished childhood memories) and money, especially given the dramatic increase in recreational-property values in recent years. That’s a volatile mix that can make your wilderness retreat a very thorny planning issue. What’s more, various family members may all feel differently about the cottage: maybe one cherishes it and others rarely use it.

In a case like that, how do you manage to keep things equal?

Life insurance can be used as a possible solution. For example, say your cottage is worth $750,000. You could name a local family member as the inheritor and then buy term life insurance for $1.5 million, listing others as the policy’s beneficiaries. And when the time comes, the assets and insurance can be divided according to yours and your family’s wishes.

Note that this is a simplified example; an advisor can help you refine it to account for things like the capital-gains tax the handover a cottage or other high-value assets would trigger; term-life insurance payouts are tax-free.

5. Bring your kids into the discussion early

It’s never too early to start teaching your kids about money and financial matters: according to financial research studies, children begin to understand the basics of finance around the age of two or three, and their financial habits solidify fast –as early as the age of seven.

Of course, you don’t need to start talking to your kids about your investments, real estate holdings, or estate plan when they’re that young – it is recommended to so earlier rather than later. If you wait too long, you could overwhelm them if you’ve built a business, for example, or have a complex portfolio.

6. Revisit the topic regularly

Families change over time, with new spouses and children entering the picture regularly, so you should discuss family finances ahead of major events, like a wedding or a birth. If the matters in question are complex – and include a family business or shared property, for example – you should meet more regularly, perhaps yearly or every six months.

7. Use life insurance to your family’s benefit

Term life insurance has another benefit that can help with planning, especially for your estate plan: it goes straight to your named beneficiary on a tax-free basis, not through your estate. As such, it passes directly and privately – avoiding probate and reducing the possibility of a wills variation claim.

That makes term life insurance useful if you would like to leave money to someone privately, or if you would like to leave more money to one child than the others, for example. Even if you do so, however, it may be a good idea to tell the whole family, so you can explain your reasons and avoid hurt feelings should the other siblings find out about the policy.

8. Annuities can be help you share wealth gradually

Annuities are a retirement staple: under an annuity, you invest a lump sum and the annuity pays you this money back, with interest, on a regular basis – either monthly, quarterly, every six months or annually.

However, annuities don’t just have to be for retirement: you can use them pass on your wealth, too. For example, let’s say you have a child who’s, shall we say, not the best money manager and you’re concerned that if you provide them with a large one-time sum of money, they may spend it unwisely.

This is where an annuity could help, as it would effectively let you hand the money over to them more slowly, so you can at least be sure it’ll last them a number of years. But as with life insurance, this is an area you’ll want to discuss with your advisor, to ensure it’s set up and acted on according to your plan.

Set your family up for success – with the right advice

Few things have more value than family. But when it comes to discussing the family’s financial value, too many of us put that aside for another day – or even pass on the topic in totality. Your goal should be to work together as a family unit to guide, support, and set each other up for success so that you meet collective and individual financial goals in a highly mindful manner.

An advisor can help with setting a plan and working with your family to achieve the plan’s objectives. Connect with your family and reach out to your advisor today.

And remember: you need not wait until someone dies to pass along family wealth and you shouldn’t wait until it is too late to help your family get on track with their financial goals. Work with your advisor to explore your options, get advice on how to talk to your family about their finances and financial goals, and how you can all work together to make dreams come to fruition.