No one sets out to leave a financial mess behind if they lose mental capacity or pass away, but if you want to leave your family fond memories rather than confusion and conflict, you need to properly consider and document your legacy plans.
It's rarely an easy topic to consider talking about, but once addressed, it can make a significant difference to your ability to get on and enjoy life.
Legacy planning requires a whole-of-life approach. Simply having a will in place is rarely enough.
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Comprehensive legacy planning is built around your values and life goals. Below are a few key matters which we believe all families need to consider.
Parents have a responsibility to prepare their family to receive money. They shouldn't simply expect or hope everything will be okay. Unfortunately, many professions that are supposed to assist with wealth transition focus more on preparing the money for heirs rather than preparing heirs for money. This is a transactional approach to the issue, and capacity building takes to do properly.
As an example, a Wells Fargo study showed 69 per cent of older respondents view monetary gifts to children and beneficiaries as an expression of love, whilst 30 per cent of Millennials say monetary gifts are a way to exert control or influence.
The potential flash point among beneficiaries is often a long list. While many people think their children will behave appropriately in dealing with their estate, in our experience it is often the children's spouses who plant seeds of conflict.
The genesis may be a perceived inequality of treatment over the years, or one sibling feeling a need to intervene in how another sibling is spending money they've observed their parents accumulate over decades.
Identifying those pressure points today and building strategies to address them can reduce risk of fractured family relationships in the future. Sometimes the optimal solution is simply having a chat, but you should start by considering what factors could give rise to disharmony amongst your beneficiaries.
Lifting the curtain
Do your beneficiaries have any sense of your current wealth? How may they react if they found out?
With the new trust laws in New Zealand taking effect on January 31, 2021, a significant number of people (above 18 years) will be finding out for the first time they are beneficiaries of a trust.
According to Perpetual Guardian lawyer Henry Stokes, "The whole underlying principle of the new act is that beneficiaries should have sufficient information to be able to be sure that trusts are being run correctly, and that trustees are doing their jobs".
No one wants their wealth to cause their loved ones to live shallow lives. As Warren Buffett said, "leave your children enough so they can do anything, but not enough so they can do nothing".
At what point could money become destructive to a child? Is it $500,000, or $1 million, or $10 million? If I buy my child a car or house, is this helpful or harmful? These are important questions to consider and plan for.
Do your children understand the trials and tribulations you and your family experienced to build the wealth and life you enjoy today? The odds are your story involves working hard, saving money where you can, and investing wisely.
These are all important lessons to pass onto the next generation, it's well-documented that storytelling is the most effective way to help people learn. Plan to spend time telling your story to your children and grandchildren who may one day benefit financially from your efforts.
One thing you can do is to have appropriate "exit strategies" in your plan, so that you may make adjustments if the environment moves in a significantly different direction in the future.
Trusted advisers, who will be watching the market, regulatory, and legislative environments can help you understand how, when, and whether to take advantage of planning opportunities that may arise.
Estate planning can be a minefield – wills, trusts, companies, shareholdings and appointors are a few of the matters which may require consideration. Some people dutifully put these documents in place, but don't have the right conversations beforehand to clarify their wishes and determine how best to structure their estate for the best interests of their beneficiaries and their desired legacy.
Financial planning, on the other hand, includes assessing your current financial goals, including the review of current investments and other assets. A financial adviser works with the client to make decisions about present assets to hopefully grant greater financial freedom and meet future financial goals. An experienced financial planner helps clarify existing options and recommends products, investments, or other strategies to help one achieve her financial goals
Both estate planning and financial planning are important – for specific reasons. Speaking with the right professional about one's goals is imperative. An estate planning lawyer will not be able to offer financial planning, and a financial planner will not be able to plan and draft an estate plan.
With that being said, estate planning lawyers and financial advisers work well together to ensure that they are creating comprehensive plans that will deliver the best outcome for their mutual clients.
· Nick Stewart is an authorised financial adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, wealth management, risk insurance and KiwiSaver solutions.
· The article is prepared in association with Stewart Partners, Australia. The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an authorised financial adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz