Empowering the next generation

For many families, getting kids to pitch in around the house – or convincing grandkids to look up from their phones – can feel like an uphill battle. It’s no surprise, then, that parents and grandparents often wonder when is the right time to bring younger generations into important discussions, such as the family governance process and legacy planning. The truth is, conversations about wealth transfer may need to start earlier than most people expect.

Just as it takes time for school lessons to sink in and for kids to gain the confidence to work independently, preparing children to steward a family’s legacy isn’t an overnight affair. Legacy planning is about more than transferring capital to the next generation; it’s also about communication, teaching them how to handle money and establishing shared values that can guide them to make thoughtful decisions and manage wealth responsibly.

“You’re preparing the wealth for the family, but you’re also preparing the family for the wealth,” says Shelley Forsythe, Director of Family Enterprise Planning for BMO Family Office. “Purposeful wealth and legacy planning starts with determining your goals and intentions, along with values, hopes, dreams, and aspirations. What do you want to achieve, what challenges can be turned into opportunities, what do you want to avoid?”

Why wealth transitions fail

Sometimes, it helps to know the reasons behind unsuccessful wealth transitions. Research1 shows that the biggest, by far, is a breakdown in communication and trust (60%), followed by heirs being uneducated or unprepared for their required roles and accountabilities (25%), a lack of shared vision (12%) and legal, planning or accounting issues (3%).

It’s important to start conversations around legacy planning early, as it can take time to get everyone on the same page. Forsythe says it’s very common for parents to avoid discussing wealth, even with each other, because of fear or disagreements. “Spouses or partners are from different family trees and roots, maybe different values,” she says. “They may have received different money messages as kids.”

When helping families sort through the core questions around stewarding wealth with purpose, she likes to focus on finding commonalities and noting differences in perspectives across four main areas: the family enterprise, preparing heirs and the NextGen, philanthropy and technical planning – all while balancing family harmony. Here are some steps that help families get there.

Understand your enterprise

Purposeful wealth and legacy planning starts with understanding what constitutes your family enterprise. “You have a family enterprise when you have all assets and the family interconnected through ownership and engagement. That doesn’t happen overnight,” says Forsythe.

Your family enterprise might have a variety of assets or capital accounts, including:

• Businesses
• Financial capital (digital assets, liquid assets, real estate, heirlooms, deferred assets)
• Philanthropic wealth (donations, foundation)
• Non-financial capital accounts (human, intellectual, social, spiritual)

When thinking about the purpose of the wealth, families may need to determine who, what, when, where, why and how questions as part of their decision-making process. Forsythe offers examples of questions to consider: What are we trying to accomplish and why? What are our assets? Who do we want to benefit? How and when will younger generations benefit or step into stewardship roles and responsibilities? When do we want these things to happen – during our lifetime or beyond? What conversations are required to invite, engage and empower the next generation?

Every legacy plan is unique, and allocating assets and potential roles among family members may not always be straightforward. “I often have families who think about: there’s fair, there’s equal and there’s fairly equal. Sometimes there’s need,” Forsythe notes. “It’s really across the spectrum, and everyone is different in terms of how they want to be thoughtful and intentional, and where they may want feedback.”

Identify your values

Values are rooted in the past – who are you, where you come from, and what traditions and stories are integral to your family – but they can help shape your mission (present) and vision (future) too, explains Forsythe. Values inform your thoughts, words, actions and ideals and influence your behaviours, attitudes and decisions. “They can also help you determine your priorities,” says Forsythe. “Think of them as the road map for rules that you live by.”

Identifying and sorting your values can provide focus and direction. Pay attention to which values you and your family gravitate toward most, whether that’s health, happiness, love, loyalty, gratitude, safety, integrity, creativity or adventure, says Forsythe. But also think about what makes you angry, she adds, noting that anger can be a sign that something violates a core value.

Once your family has narrowed the list to their top five to 10 individual values, Forsythe suggests getting everyone to define and share the guiding principles of what each value means to them. To help reinforce these values, some families may draft their family mission, vision and purpose statements.  Creating a family coat of arms is an exercise that is powerful yet simple, says Forsythe, noting that kids as young as 13 have participated.

Prepare and educate your heirs

Forsythe often hears from grandparents and parents who worry about engaging younger generations in wealth and legacy planning, out of fear that the kids will lose their motivation or “become trust fund babies.” When confronted with this concern, Forsythe likes to bring the discussion back to purpose. “If we want to educate and prepare them, how do we kind of flip that thinking around? Because if they’re going to be a beneficiary of a trust, what might they need to know? And if you want them to be responsible inheritors, what does that look like?” she says. “That leads to different conversations.”

Once there is consensus within the family around purpose and values, then it’s up to those who are leading the wealth transfer – presumably the parents or grandparents – to decide what information to reveal and when. “I always say think through what your key messages will be and share a little bit at a time,” says Forsythe, who likens this gradual approach to a dimmer switch. You can ease into things by discussing simpler topics and concepts first rather than numbers.

Forsythe shares several ways to start engaging younger generations, such as talking about individual and shared goals, discussing different roles and responsibilities, family learning opportunities, philanthropic endeavours, as well as establishing the next generation’s relationships with trusted advisors.

For parents who are uncomfortable about discussing wealth, Forsythe points out that kids likely already have a sense of their family’s finances. “They can pick up on whether there’s wealth, depending on the kinds of vacations you take, the house you live in and the car you drive,” she says. “They have inklings, and they’re probably making comparisons to their friends.”

Hold regular family meetings

When establishing a legacy plan, communication is key. One popular approach to help parents talk with kids and grandkids is to hold meetings regularly, such as monthly or quarterly, and perhaps an annual retreat. These meetings are a forum to discuss the family enterprise, but also an opportunity to share information, build relationships and practise communicating, says Forsythe.

To ensure family meetings are both productive and something participants will look forward to, she recommends they have four cornerstones:

• Family development: assessment, learning, planning, skill training, policy creation, philanthropy
• Family enterprise: entrepreneurial focus, information sharing, tours, internships, meetings with directors, innovation, connection to ownership and enterprise
• Family cohesion: vision, mission, values; history and traditions; hopes, dreams, aspirations; support, care, love; fair process
• Family fun: games, activities, tournaments, talent shows, humour, celebration

Privacy and risk management can be another important issue for families to discuss in meetings. Early on, Forsythe suggests, establish a code of conduct, including policies around confidentiality, social media and cybersecurity. That can help revisit what private information will be kept within the family and reduce the chances of reputational or safety risks.

Take the first step

At times, putting a legacy plan in place might feel like you’re running a school that’s all about educating family around how to handle wealth. The benefit of this work may not come overnight, but the impact of this work can last for generations. 

“Starting on a wealth and legacy plan might feel intimidating at first, but when families work together and younger generations are invited and engaged in the process, the results can be beautiful,” says Forsythe. “Start simple and gradually build over time.”
 

1 The Williams Group

 

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