Financial advisors have an opportunity to be proactive with clients in broaching the topic of intergenerational wealth transfer, according to research conducted for Toronto-based Canadian Imperial Bank of Commerce (CIBC).
A recent poll found that 51% of Canadians expect to provide an inheritance to loved ones, but an overwhelming 79% have not discussed the financial and tax implications of those inheritances with an advisor.
The study also found that 47% of Canadians have not had conversations regarding the transfer of wealth with those who will receive that wealth. That can be problematic, says Sarah Widmeyer, managing director and head of wealth advisory services at CIBC.
“There is a clear disconnect between generations when it comes to wealth transfer, and this can have a lasting impact on family legacies,” Widmeyer says in a release. “Without open and honest communication, families risk significant conflict, especially when parents’ wishes don’t align with their children’s.”
The research also lists topics that can become areas of conflict if parents and their children do not discuss them before decisions are made.
For example, parents who use trusts to protect wealth intended for their children or grandchildren may worry that their kids will think their own judgment is not trusted. Children may also be unclear as to the benefits of charitable giving and wonder why their parents are setting aside a portion of wealth for that purpose.
Another issue that can become contentious if it is not discussed prior to the parents’ passing is that of the family cottage.
“Parents may expect the cottage to be used for many generations, but their children may feel differently,” says the CIBC report. “This could result in lost planning opportunities for the property while the parents are alive.”
The research also provides a warning to parents who name more than one child on investment or bank accounts in order to avoid probate. Those parents may not anticipate the potential conflict and how it could limit the possible estate-planning strategies available to them.
CIBC provides some key tips that advisors can share with clients who are looking to develop a wealth transfer plan. They include:
> encouraging clients and their partners to openly discuss how they want their wealth to benefit those they care about
> encouraging clients to think about anyone in their lives who may require special financial considerations, such as someone with a disability
> looking to meet clients’ family members before the wealth transfer is required.
The poll was conducted online for CIBC on May 19 and May 20, among 1,504 randomly selected Canadian adults who are also Angus Reid Forum panelists.