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Dare to prepare the heir?

A wealth car crash is coming our way because a large proportion of UHNWs and HNWs are not helping their successors plan for their financial futures, explains Sophie McIntyre

Fully one third of HNWs and UHNWs in Britain, Canada and the US – with a combined fortune equal to near one per cent of the world’s wealth – have no plans in place to educate the next generation on wealth management. That’s according to the Wealth Transfer Report 2017 from RBC Wealth Management, which surveyed 3,105 HNWs, who together are worth nearly $14 billion, published this week.

The report, which examined levels of intergenerational planning, found that three-quarters of high net worth inheritors had had conversations with benefactors about the value of their inheritance, but only a fifth of inheritors had talked to their benefactors about how that wealth will be transferred.

Most shocking of all, a third of respondents had made no plans whatsoever to prepare their kids for the fortune coming their way. Which as most Spear’s readers know is a very expensive car crash waiting to happen.

‘The average age at which people started these conversations about money with their children was 27,’ says Julian Washington, Head of Intermediary Relationship Management at RBC Wealth Management. ‘But the average age of inheritance is 29. In what other area of life would we wait until that stage!’

Two years is not a long time to learn how best to deal with a great deal of money. Without plans in place, a whole host of things could go wrong for the next generation, says Washington, who encourages benefactors to educate their inheritors and help them use their inheritance responsibly.

The most problematic situation, says Washington, is when there’s a family business involved. Imagine the scene: the first generation sees their business as their pride and joy, but the same isn’t always true of the next. Perhaps one child would prefer a career in the arts to a role in the family business, or maybe another is an angst inducing spendthrift? In a worst-case scenario – this combination could result in a forced sale of the business.

‘The only way to manage this situation is to start early,’ explains Washington. ‘It takes a lot of planning. You have to help the children work out where they want to be.’

To achieve this RBC man has five tips for a smooth transition of wealth: if you haven’t started planning, you need to get on with it. If your circumstances change, you need to review your arrangements – for example, marriage, divorce or purchasing a property (including a home abroad) can significantly alter your legal and tax situation. Next make sure your successors are prepared to inherit; and take advice from professionals. ‘Don’t hold back from getting good professional advice from lawyers, wealth managers or private bankers,’ says Washington.

Finally, and rather more grandly, you should have a ‘vision’ for your wealth. Imagine the potential impact that you could make on future generations of your family that aren’t even born yet. And what about the impact your family could have on other families worldwide through your philanthropic donations? ‘Estate planning can be about so much more than just passing on money it can shape destiny of family and shape other things for the really longterm,’ adds Washington.

And how early is too early to talk inheritance? ‘Obviously we don’t want to scare young children by asking them to contemplate their parent’s demise,’ he advises. But you can of course get school-age children into good budgeting habits early on.

So don’t be afraid, lose the British stiff upper lip, talk to the young and make sure your wealth makes a positive impact on future generations. After all, one thing’s for sure, you can’t take it with you.



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