Preparing Your Heirs for Wealth Transfers

Family issues are often overlooked within wealth and retirement planning. The reason you save and invest and ultimately transfer your wealth is because these are people you love. So an important set of issues to consider are the practical aspects of wealth transfer: what needs to happen when the time comes for the execution of wills, trusts and estates?

No one can put a precise number on it. CIBC Capital Markets says $750 billion will be inherited by Canadian baby boomers in the next decade. RBC Wealth Management forecasts that the total intergenerational wealth transfer in the US will exceed $3.2 trillion. So one way or another, a tsunami of wealth transfers is coming. The question becomes: what are wealth management clients doing to prepare their heirs?

Running a “dress rehearsal”
The “what” of an inheritance matters. But it is also very important to prep recipients with the “how”. Today based in Altamonte, FL, founder, president and wealth manager Daniel Rey of Voyage Retirement Solutions was and born and raised in New York. Growing up seeing both his mother and father working on Wall Street, Rey began honing his financial literacy at an early age.

Rey maintains that wealth transfer should not be some sort of last minute surprise. Instead, a key component of wealth management is to make sure family members are prepared not only emotionally but also in terms of financial literacy and maturity. Rey maintains that a great deal of effort should be expended engaging, educating, and otherwise preparing heirs.

Even so, it’s often the details that get overlooked in the event of a sudden change in circumstances. Such events are stressful enough. Nonetheless, this is where details begin to matter and it is here that Rey recommends that his clients organize what he calls a “dress rehearsal.”

“A dress rehearsal is a meeting with key members of the family to lay out what should happen in the event of death or incapacity,” says Rey. “What's worse than losing a loved one is having to deal with the burden of weeding through a financial cluster in the midst of grieving.” Organizing such a run through “can help instill peace of mind for our clients while providing their heirs with all the information they might need.”

Developing a “financial guide”
Leland Gross, CFP®, the founder and CEO of PeaceLink Financial Planning LLC in Virginia Beach, VA offers similar advice. All too often, maintains Gross, heirs are unprepared regarding practical matters and as a result, important issues can fall through the cracks.

“In the US there is approximately $7.4 billion in unclaimed life insurance policies because beneficiaries didn’t know the policy existed so they wouldn’t know to claim their benefit,” says Gross. “Additionally, 15% of siblings have fought over their inheritance, and 33% of them have lost their relationships with siblings over these disputes.”

Consequently, says Gross, “It is important that families learn how to engage with these conversations and find a way to stay informed on the family finances. If parents do not feel comfortable talking to their kids, I have them complete a financial guide, dictating where their insurances, investments, loans, will, safety deposit boxes, etc., are held, along with key contacts like a CFP, CPA, or lawyer. I keep a copy, I have the client keep a copy, and we give a copy to their children.”

“Equal” versus “fair”
Jim Morrison is founder and CEO of Morrison Financial Group in Coldwater, MI – and has strong feelings about the importance of ensuring heirs are ready – practically and emotionally – for wealth to come.

“Being in the financial services business for over 45 years, I have seen many inheritances,” says Morrison. “Some of the family situations and their outcomes have been very good, and others not so much. The best outcomes are the result of planning in terms of things like what was left behind and to whom and why.” These Morrison insists, “are vital issues to address.”

• Dealing with “equality”
One aspect of that Morrison believes is all too often overlooked is that there is a difference between the terms “equal” and “fair.” Most clients start out from a position that heirs, especially siblings, need equal outlays from a will or trust. But instead of equal, Morrison challenges clients to think instead about the issues of “need” and “deserve.”

Morrison recently worked with a client where one of their kids was an extremely successful business person while the other worked hard but was facing struggles and was barely getting along. Here, one set of grandchildren will need more help with college and other life needs than the other set. Then in the case of another client, one of the siblings was handicapped, and so again, the case is strong for payouts to become needs-based, not equal.

“Though a grandparent may love all of his grandkids just the same, one set may need a lot more help than the other,” says Morrison.

Of course, needs-based disbursement can lead to hard feelings and family disunity. Morrison says this risk can be minimized by using a trust. That is, no one other than each direct beneficiary needs to ever know of the explicit terms or distributions. Nonetheless Morrison encourages openness within families, explaining why there may or may not be broadly equal distributions.

• Dealing with “deserve”
A potentially troubling aspect of family equality is whether or not an heir or set of heirs deserve equal treatment. Another client told Morrison that his next generation of heirs had largely been spoiled, weren’t working or even going to school and the situation was exasperating. The client was mulling over withholding the wealth, perhaps giving everything to charity. That’s when Morrison suggested thinking about the next generation to come – the grandkids.

The idea resonated but next the client worried the grandchildren would be growing up in an environment lacking a solid working ethic. So Morrison suggested a solution. In the end each sibling received one dollar each in inheritance. But for the grandchildren, a trust was established.

Within that trust, “the grandkids are going to get a sum of money every year equal to what they earn in the W-2 or 1099’s,” says Morrison. “But if they don’t work? They don’t get anything.”

In this way, the client was able to skip a generation, bestowing wealth in a way he believed would inspire and motivate his grandchildren to become more successful than they might otherwise.

Family issues are an area that is often overlooked in wealth management and retirement planning. Have something to contribute to the discussion? Email us your thoughts at This email address is being protected from spambots. You need JavaScript enabled to view it..