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From me to you

22 January 2024

Hamish Don
From me to you

A recent US study by Cerulli Associates estimates that Millennials are set to inherit US$72.6 trillion by the year 2045. This figure stands at more than $1.1 trillion in New Zealand, which is astonishing given the size of our country.

With the financial security of children a very important consideration for many people, it’s vital that we navigate the process of transferring wealth in the right way.

So, how should you go about it?

Money talks, so talk money

Talking about money does not come naturally to most people. It can be an incredibly emotional subject and families often shy away from having these discussions.

However, silence robs you of the opportunity to teach valuable lessons.

It’s a good idea to teach your children how money can provide options, like being able to retire on their terms, take care of their family, enjoy their favourite pastimes or contribute to causes they are passionate about.

Normalising conversations about money establishes an environment where children feel comfortable asking questions and can gain valuable perspective.

Timing and approach are everything

When it comes to discussing the transfer of wealth, your timing and approach are very important. Starting this conversation early is crucial to ensuring your loved ones have a comprehensive understanding of your plans.

Beginning early allows you to ease your children into the topic and gives them time to let the idea sink in. Waiting for a major life event, such as retirement or a health scare, can cause unnecessary stress and confusion.

It’s also essential to adapt your approach based on the age and maturity level of your children.

Younger kids may require simple explanations, whereas older children can engage in more in-depth discussions and should be introduced to trusted advisers at an appropriate time.

Explain the purpose

Your children should understand the purpose of the wealth transfer.

Share the values and principles that guide you and that you want your family members to adopt. Ensure these values, and the reasons behind them, are clearly communicated and explain why it’s important to have these conversations.

If you have a will or trust in place, your children should be aware of how these work and what role they will play in your estate plans.

Communication doesn’t end there

Discussions about the transfer of wealth should be ongoing. Keep your children informed about any changes to your financial situation or estate plans as they occur, and encourage them to ask questions, express their concerns and share their thoughts.

Family meetings can be a forum for open communication and help ensure that everyone is on the same page. Keeping records of your discussions is also a good idea, particularly if specific promises or agreements are made.

Manage expectations, emotions and conflicts

Managing the expectations of your children is critical. Be transparent and realistic about what they can expect in terms of financial support or inheritance, to prevent misunderstandings and disappointments in the future.

Addressing the emotional aspect of wealth and inheritance is essential, as money can have a significant impact on family relationships. The emotional wellbeing of your children is as important as their financial understanding.

In the event of disagreements between family members, it’s essential to encourage open communication and seek professional mediation if necessary. Conflict resolution is vital for maintaining family harmony during this process.

Encourage independence

While your children should be aware of their potential gain, it’s important to encourage their financial independence. Explain that your intention is to provide a safety net, rather than create a dependency, and support them in the pursuit of their own education, career and life goals.

By outlining your expectations and helping them to make choices that align with their own interests and abilities, you’ll empower your children to achieve success on their terms.

Seek professional guidance

Financial advisers can provide guidance and educate your children about essential investment principles, such as the power of compound interest, the importance of diversification and how to manage risks. This professional insight can be invaluable for helping them to make informed financial decisions.

Transferring wealth can also be a complex and intricate process. Seek professional advice from a lawyer to ensure everything is in order and your estate plans are sound from a legal perspective.

Experienced financial and legal advisers can act as a sounding board and help set up your family for success.

This is an excerpt of an article published in the latest edition of our flagship publication for clients only, News & Views. Craigs Investment Partners clients can view News & Views, including the full version of this article by logging in to the client portal.

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Hamish Don

Hamish Don

Head of Private Wealth Research
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Market Insights enewsletter

Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.

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