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Perspective NewsletterOne of the most common questions we get from our clients is how to maximize the chances of a successful wealth transfer and retain strong family relationships. Clients want to ensure that their hard work and legacy continue to live on through future generations. We remind our clients that there are only two things they can do with money: spend it, or give it away (to children, future heirs, or charity). When deciding to give money away to your children, many different questions need to be answered. How much? At what age? How can I prepare my children? Will the money hinder my child’s development? Or will it be too late to enhance opportunities in their lives?

In a note to his shareholders, Warren Buffett advised parents to leave the children enough so they can do anything, but not so much that they can do nothing. Parents want to make sure that the money they pass on to their kids sets them up for success without holding them back. The passing of wealth should be an opportunity to enhance their children’s lives and ultimately the world around them. No parent wants to feel like they’re enabling entitlement and laziness.

Peter Evans, with Wise Research Counsel (a charitable think tank) answers these questions in Tom McCullough and Keith Whitaker’s book Wealth of Wisdom: The Top 50 Questions Wealthy Families Ask. He suggests two primary considerations:

Have a relationship with the emerging adult to understand their motivation, goals, aspirations and tendencies

Evans stresses the importance of not giving a significant inheritance to children before they have become mature and independent. This provides the children with the opportunity and time to develop their own careers and “earn their way to adulthood”. He doesn’t suggest hanging them out to dry. Rather, parents/trustees should provide the rising generation children with a safe and secure environment, in which they can prosper. Parents can do that by helping cover educational expenses, health care expenses, a down payment for a mortgage, or capital for starting a business.

It’s also important for parents to capitalize on learning opportunities to teach their children lessons about money and investments. You can start with a small but reasonable allowance and savings account for children, as young as 5 years old. This will help them understand decisions around finances and at the same time, create opportunities for informative family discussions about the value and potential of money.

Understand how each member of the family is wired through a variety of assessments

To better determine how, to whom, and when to give your money to your children, Evans recommends the use of different personality assessment tools. These tools can help you understand your family dynamic and how each child is different. The results can be used to help create development plans and a strategic road map for the future by focusing on the child’s own values. Additionally (or alternatively), families can choose to work with a consultant, life coach or psychologist to create accountability around these strategic plans and goals. This boosts support between family members and encourages them to pursue their respective paths.

There are quite a number of personality tools that can help. Some of them help identify personality types (Myers-Briggs Type Indicator® (MBTI®)) while others highlight a person’s strengths, learning styles, and interpersonal preferences (Enneagram). Integrating one or more of these tools enables families to customize their wealth plans based on their specific goals, values, and beliefs and encourages collaboration between parents and children.

The decision to leave wealth to your children is not an easy one. Money is agnostic, but it tends to amplify whatever it is serving at the moment. Effective communication and flexibility help ensure that the wealth being transferred will enhance the lives of its beneficiaries while providing family and financial continuity. Planning for the wealth transfer will improve the likelihood of a successful outcome. At Northwood we aim to help families navigate the challenges in motivating and supporting children to create and reach their own goals.

 

Northwood Family Office

Bana Khoury

Bana is a member Northwood’s client service team, working with families in the areas of financial planning, investment management, and taxation.

Bana is a candidate for the Chartered Financial Analyst (CFA) designation. She has a Bachelor of Commerce degree in Finance, Strategy and Operations Management from McGill University, which included a five-month exchange program at Singapore Management University.

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