3 tips for advisors on connecting with heirs for estate planning

3 tips on how to connect with next-gen heirs for estate planning

August 8, 2023 6:19 PM

Inheritance and estate planning for next generation

Bringing children into estate planning conversations is crucial to both clients and their advisors, but as with many important things in life, the hardest part can be just starting.

"A lot of parents really spent so much of their time and energy building this wealth for their families … that they forget about the next most critical piece, which is really communicating that to their family or educating their children," said Kris Yamano, a partner at Crewe Advisors, a registered investment advisor based in Salt Lake City.

Failing to communicate with children about estate planning could mean costly, bitter disputes in the event of a parent's passing away. It could also take away the opportunity to help the younger generation slowly flex wealth-building muscles, understand their place in the family's future and prepare to one day take over management of family assets. And the problem is common: A Cerulli Associates report from earlier this year found that over half of heirs (among surveyed wealthy investors) did not know what they would inherit until the giver's death.

Cerulli predicts around $84 trillion will pass down through 2045, most of it to heirs. Advisors who can help clients communicate their legacy to those heirs will be much more likely to retain the business of that family when the assets pass down.

Financial Planning spoke with experts from across the industry on how to help clients broach the estate planning conversation with children, and how advisors can succeed in building that critical relationship with the next generation in their books of business. Below are some tips they shared.

Start early, start small

Educating children about family finances should start from a young age and can be as simple as explaining the reasoning behind different everyday purchases, according to Marguerite Weese, the chief operating officer of the Emerald Family Office & Advisory and the national director of family legacy strategies at Wilmington Trust.

"When you're making a purchase around your child … start to talk out loud about how you came to the decision to buy this car, for instance. Because that starts to express the values that are important to you," Weese said.

Advisors can encourage clients to address family spending behaviors with kids proactively and build that early transparency that also educates future heirs.

Weese said she brings up fundamental concepts of personal finance like needs versus wants when shopping for groceries with her own 4-year-old daughter. "It seems so basic, but we talk about how we're purchasing the vegetables — that's a staple in our diet. And then we are more selective in the snacks, the discretionary food. And if we got the cupcakes, then we're not going to get the cookies."

Over time, as children get older, this can morph into talking about family assets more broadly. "You can start having intentional discussions about how long you want resources to last, or what you'd like your family legacy to be."

Offer value at critical moments to growing heirs

"Oftentimes, kids don't necessarily want to listen to their parents," said Katie Carlson, the head of wealth strategy at Bank of America Private Bank.

But an advisor can come in at different milestones throughout their development as young adults as a friendly, neutral third party to encourage good habits that lay the foundation for future successful estate planning discussions, educate the child and win points as an early ally in their own wealth-building journey.

Such milestones could include, for instance, if a parent tells the advisor their kid got a job at age 14. "You could say, 'Well, let me talk about how to fill out their W-4. Let me talk to them about, what are their goals?'" Carlson said.

Another opportunity — which can also serve as the perfect moment to meet a client's child for the first time — can be college planning, according to Dana Rhodes, the senior vice president of advisory services at SPS Family.

"Maybe you're working on an education savings plan with that family of some sort... you could ask them, 'Hey, have you thought about what you want to do when you're out of school? Do you want to go to college somewhere? If so, what are your favorite schools? What do you like to do?'" That can transition over time into talks about budgeting for college.

Rhodes said initial meetings with a child can be shorter and should avoid jargon, so the advisor doesn't seem out of touch.

Facilitate comfortable family conversations

Parents may want to share information about money and wealth to help prime their children to handle the family finances in the future, Yamano said. Yet sometimes, their wealth is such that parents hesitate. "They're afraid of disincentivizing their children, or they fear it will cause them to not be productive members of society, or create a sense of entitlement."

The simple way around this is to tell clients they can just map out in broad strokes where they want the wealth to go, without naming specific numbers, Yamano said.

"We don't have to share dollar amounts or every single nuance of the situation," she said.

In addition, Yamano said, the advisor can suggest and guide a family meeting — one that is "carefully curated to make sure that we're meeting the needs of the family." In this environment, the advisor can help the family focus on its priorities. For a multigenerational family that has grown children, who are having kids of their own, the focus can be "on family governance and decision making and risk tolerance for the family and values."

By contrast, a family with first-generational wealth might be more focused on the immediate tasks like getting their children into college and helping them get their first jobs.