MAKING CENTS: Discussing money with family shouldn't be hush-hush

For many families, discussions about money are often closed-door conversations between adults that do not include children.

It can even be a topic that is completely off-limits between family members. Some people don’t feel comfortable or are reluctant to have discussions about finances, as it can lead to unease within the family. There could be feelings of embarrassment, guilt, envy, jealousy, or other insecurities.

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However, overcoming these emotions and having meaningful family discussions about money can help ensure that you and your family are financially set for the future.

The largest intergenerational wealth transfer in Canada is fast approaching; families will be passing their wealth to the next generation and many family businesses will be changing hands. It should be no surprise that feelings about finances tend to centre on family, being that everyone’s relationship with money starts and ends with those closest to us.

Many Canadians say that their parents “taught them everything they needed to know” about money and investing.

Both positive and negative influences can come from family members. As you prepare to talk about your finances with family, it is important to ensure that you get across a clear message about what your plans are regarding your estate. It is vital to communicate what it means to you, how you worked hard to acquire it, what challenges and responsibilities accompany it, and how you envision your successes helping them in the future. This will help to create a strong family dynamic and open communication on an array of financial topics, limiting the chances of poor financial decision making. You may want to see them use their inheritance to help put your grandchildren through school, fund their retirement, or simply to make financial decisions so their family can live a better life.

Checking in with family members and having open communication is key. Meaningful conversations about money should focus less on how much you have, and more on what money means to your family. As a family, it is important to communicate your values and perceptions that guide how you manage your wealth.

We work so hard to build wealth, that we often forget why we are doing it. What are your values and what kind of legacy do you want to leave behind? It’s common for successful entrepreneurs to fear leaving their children their business or a large sum of money. Some people wonder how they can impart the values that they and their parents had. Studies have repeatedly shown that as much as 70 per cent of family wealth is lost by the end of the second generation and 90 per cent by the end of the third.

But what if you could continue to organize the family fortune even after you’re gone and ensure that you set up a guideline for the next generation?

Your investment team should offer you a financial and estate plan that will help you make important decisions for your family. A proper plan can help reduce the tax bill upon your death so that more money stays in the family. It’s also important to ensure that your will and power of attorney are in good standing in case you become incapacitated. Including loved ones in financial planning is an important step to ensure that you are all on the same page – especially if your spouse has predeceased you. Although it may be tough and uncomfortable at first, over time it will strengthen family ties as everyone will grow to understand the family financial situation.

You may also have a need for a family trust which can give you more control over your money by managing how and when it is spent. A family trust can also offer protection of these assets for your adult children in case of divorce.

With a family trust, the idea is to leave goal posts that can lead your children to a more successful and productive life, whilst rewarding them with more access to the family money. 

Working with a trusted, experienced financial team that can give you advice about how to safeguard the legacy you want to leave is vital to an easy transition of wealth to the next generation.

It doesn’t have to be complicated, but it has to be done right, so, planning ahead is vital to your long-term family financial success.

Lori Pinkowski is a senior portfolio manager and senior vice-president, Private Client Group, at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Lori can answer any questions at 604-915-LORI or pinkowski@raymondjames.ca. You can also listen to her every Wednesday morning on CKNW at 8:40 a.m.

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