February 28, 2024

How much do you tell your kids about your money?

By Anne Levy-Ward

When talking with your adult children about your money, you need to find the right balance between risk and benefit, candour and caution. Here’s why.

When your children were little, you taught them about money. You showed them how to manage their allowance. You explained that, sadly, an ATM isn’t an endless source of cash. And as they grew, you urged them to save some of their summer job earnings for college or university.

What you likely didn’t do was tell them much about your own money. Not their business, right?

But at some point, it probably will become their business. If they’re the executors of your estate, they’ll need to know absolutely everything about your finances after you die. That includes formerly private things, like:

  • How much your home is worth, and what’s owing on it.
  • How much other debt you’re carrying.
  • How much life insurance you have, and with which company.
  • How much you have in the bank, your RRSP, RRIF, TFSA, and other investments.
  • How much money are you leaving behind – and to whom?

So, here’s another how-much question: How much do you tell them about your money in the meantime?

What’s the Great Wealth Transfer? And why do you need to prepare your kids for it?

You’re not alone in wondering about talking to your adult kids about your money. We’re in the midst of something called the Great Wealth Transfer. It began in 2016, when the oldest of the Baby Boomers turned 70. By 2026, about $1 trillion (12 zeros!) in personal wealth will pass from one Canadian generation to the next. Observers such as Environics Research are calling it the greatest intergenerational wealth transfer in Canadian history. And that’s not to say it will be over by 2026. Many of the eldest Boomers will live past 80, and there are throngs of younger Boomers behind them. So, there will be plenty more money passed down in the next 25 years or so. And some of it could be yours.

With this wealth transfer in mind, Sun Life recently commissioned a survey by Ipsos. We asked:

  • Boomers how much they expect to leave their kids, and
  • Millennials how much they expect to inherit.

The results were shocking. Millennials think they’ll inherit only one-third of the money their parents expect to leave them.

Such a financial surprise might seem wonderful at first, but it’s loaded with potential pitfalls. Do your kids know how to handle that kind of money? If they’ve faced the career and home ownership challenges common to many of their generation, they might not. Without knowing how to handle larger sums of money, they could run into trouble. The inheritance you’d hoped would help them secure their future could shrink through avoidable taxation or poor investment choices.

That’s why this becomes a three-step project.

  1. Decide how much you’re going to tell them about your money.
  2. Tell them.
  3. Help them get access to advice.

To get you started, lawyer Jim MacKay and Sun Life advisor Trevor Theobald CFP,® CLU,® CHS™ answer some common questions.

Why is it important to prepare your kids for managing wealth?

You want to help preserve the legacy you worked so hard to leave. Also, you’d like to help equip them to manage their own money. Theobald suggests starting when they’re young, with topics such as budgets, tax, credit and compounding. That way, discussions about money when they’re older will come more naturally. Early discussions can also help you build your own confidence around money.

What are the pros and cons of talking to your kids about the money you might leave them?

Here’s where this lawyer and advisor take differing approaches.

There are more pros than cons, says Theobald. If you ever become incapacitated, your children could need to manage your money as your power of attorney. In that case, that earlier discussion will have been tremendously helpful. They’ll know where your investments are, how well they’re doing, and who you’ve been working with.

And whether they’ve handled your money before your death or not, they’ll have to deal with it afterwards. If you’ve talked about your money ahead of time, they’ll face fewer surprises. In addition, advance knowledge can give them more confidence to manage their inheritance.

Now the cons. We could be talking about substantial cash. The Sun Life survey found Boomers leaving all their money to their kids anticipated legacies around $1 million. Expecting such a large inheritance could stifle your kids’ work ethic, says Theobald. It could give them licence to mismanage their own money, or take on excessive debt. “Your kids could expect that their inheritance will solve all their problems,” he adds. They could even skimp on spending your money for your healthcare, if they take on that responsibility.

In the extreme, it could even result in financial elder abuse – which is a real and growing problem. “I’ve seen too many parents controlled and even bilked of substantial money by their adult children,” says MacKay. “As some parents age, they become more dependent on and deferential towards their children.”

With all that in mind, MacKay recommends a more cautious approach. “Generally, I suggest limited disclosure of specifics on the parent’s wills and finances,” he says. “In my experience, most adult children in this position treat the information their parents give them respectfully. But once they know they’re a beneficiary, some assume a proprietary interest in their parent’s assets. They feel entitled to a say in how the parent spends ‘their inheritance.’”

So, how do you reduce the risks? One way is to tell your children only very generally that they’ll inherit, but not how much. Don’t show them your actual will, MacKay says. “I consider such documents private and confidential,” he continues. “In general, I don’t favour sharing this information with anyone named as a power of attorney, executor or beneficiary. I’ve had Clients come back and tell me their children don’t agree with what they’ve put in their will.”

In other words: Tell them where to find your will when you die, but not what’s in it.

Emphasize, too, that whatever your plans, nothing is guaranteed. Market downturns or heavy healthcare costs could drastically reduce your assets. You may simply live much longer than you expect, and use up more of your money yourself.

To protect yourself from financial abuse, you could give a professional like an accountant or trustee power of attorney. It costs to hire someone other than your children, but you may find it worth the expense.

Your advisor will also offer you the chance to name a “trusted contact person,” or TCP. That’s an unrelated person your advisor can contact if an uncharacteristic request from you raises a red flag. An example: You want to make an inexplicably large withdrawal, at an unusual time of year. “The purpose of the TCP is to stop elder abuse before it happens,” Theobald says. “The TCP acts as a second line of defence to protect the individual against untoward events.”

More on TCPs from the New Brunswick Financial and Consumer Services Commission:

What is a Trusted Contact Person and Why You Should Name One

Is it ever a good idea to share your wealth with your kids when you’re still alive?

Absolutely, says Theobald. “We like to call it ‘a gift with a warm hand, not a cold one,’” he says. “It’s truly a wonderful thing. It allows you to see the benefits of your gift. You could help a child get into the real estate market, start a new business, plan a wedding or celebrate a major milestone.” You could even foot the bill for a multigenerational trip to Disney World.

Your children may well need your money more when they’re in their 30s than in their 60s. In today’s economy, the odds of your children owning their own homes without your help may be slim. “The key is to give in such a way that you remain solvent,” Theobald explains. “You need to able to cover all future expenses and liabilities, with a margin for unknowns. If you can tick all those boxes, I fully support gifts of this kind.”

Under those conditions, MacKay agrees. He adds that you could treat it as a “trial run.” How responsibly did your child manage that gift? The answer can help you decide how to write your will – or change it.

How can a professional help?

So, do you lean towards candour or caution? Your own advisor and lawyer are best equipped to help you decide and prepare for such a discussion.

“We offer to have this conversation with Clients’ families all the time,” says Theobald. “Sometimes, this means meeting with Clients and their children together, and sometimes we will meet with the kids independently. If the timing isn’t quite right, we keep the invitation open.”

Your lawyer also has an important role to play – even before you speak to your kids. “Talk to your lawyer first,” says MacKay. “Set the parameters of the discussions. Make it clear: Will you be asking your children for advice? Or will you simply tell them the location and terms of your financial and legal documents? Your lawyer can review the various issues that can come up in discussions with your adult children. That way, you can be ready for any objections and reactions they might have to your plans.”

There’s no doubt that talking about your money can be uncomfortable, especially with your adult children. How much you choose to tell them is ultimately up to you. But a well-thought-out conversation can prepare your kids for the future, and give you some peace of mind.

Don’t have an advisor?

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This article is meant to provide general information only. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.

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