Wealth transfer: Addressing challenging conversations within the family

Wealth is a complex topic to navigate, particularly within a family context. Many families are unprepared to discuss money with each other in terms of amounts and future plans, and many others are uncomfortable with it altogether. What’s more daunting is when estate plans and legacies are at stake.

Avoiding these subjects can have serious repercussions down the line. Primarily, they create rifts in communication that often result in confusion and uncertainty. Starting the conversation now, however, can have a profound impact on the success of a wealth transfer and have a positive impact on the financial status and mental health of everyone involved.

So, what causes people to shy away from this kind of discussion? One pervasive reason is the approaches different generations take toward financial literacy.

Encourage financial literacy

Nearly 60% of younger Canadians receive financial education through conversations and experiences with family members and, less likely, through a Wealth Advisor. In contrast, those 65 and over rely primarily on financial advisors, with family conversations only contributing to 20%.¹ This contrast demonstrates how wide a gap exists between age groups when discussing finances as a family.

Starting financial conversations earlier makes complex topics a little easier to broach. The more you discuss finances with your family, the more opportunities you create to build trust and ensure that all members have the knowledge and tools they need.

Set up avenues for trust

Many families avoid wealth transfer conversations due to distrust between the benefactor and their family members. In fact, a Canadian research survey found 32% of affluent Canadians worry about how their beneficiaries will handle their wealth.² Each family dynamic is unique, but feelings of distrust commonly stem from poor or absent communication. By avoiding financial conversations over many years, families put up walls that prevent them from understanding each other’s intentions and create feelings of uncertainty.

When we open up the dialogue in a respectful way, we create channels for mutual understanding and trust. In the long run, everyone will be better prepared for what lies ahead.

Prepare your loved ones

The conversation may be challenging at first, but it can have a significant impact on how inheritors prepare and how the wealth is handled in the future. Largely due to poor planning, approximately 70% of wealth transfers result in disputes or a loss of assets, and some estimate the same percentage of wealthy families lose their wealth in the next generation.³

If you provide your family with more time to prepare and are open about your plans, it is more likely that they will put more thought into how your assets are used.

Make your intentions known

It’s not uncommon for older generations to feel it’s impolite to talk about money. But when speaking with your family about their financial future, being honest is more important than being polite. Be forthright with your intentions and share which assets will be given to each beneficiary and why. It will leave everyone on the same page and may also bring to light any issues that have been overlooked.

However, being honest and straightforward about your plans may prove more difficult than starting the conversation. That’s where a Scotiatrust Estate and Trust Consultant can be an asset.

Bring peace of mind

Many people avoid discussing their plans with friends or family because they worry about hurting feelings or creating tension. Although there may be an initial strain when starting the conversation, you are giving your potential beneficiaries the opportunity to talk things out and help the discussion in the long run. Otherwise, you risk your loved ones feeling more upset and confused, wondering what they did wrong.

One of the greatest benefits of starting a healthy conversation on wealth transfer is that it promotes a sense of connectedness. Relationships are essential to our mental wellbeing, and letting these conversations fall by the wayside can burden everyone with uncertainty. Being honest about your assets and your future wishes for them brings peace of mind that can strengthen family ties.

It may seem awkward or impolite to talk about the future of your wealth, but discussing it openly with loved ones is the right thing to do to ensure the long-term success of your wealth and the people you leave it to.

How Scotia Wealth Management can help

Scotia Wealth Management advisors are often involved in family discussions regarding the transfer of wealth. They witness the unique pain points many families face and, by leveraging the added value of a team-based approach to your planning, can share strategies to help make these discussions easier. Together with your advisor, Scotia Wealth Management’s Estate and Trust specialists help you feel more prepared and confident to have difficult conversations with your family.

¹ https://www.canada.ca/en/financial-consumer-agency/programs/research/canadian-financial-capability-survey-2019.html
² https://environics.ca/study-release/environics-research-survey-shows-affluent-canadians-are-worried-about-wealth-transfer/
³ https://www.naepcjournal.org/journal/issue07s.pdf